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Does the D-Mart IPO change our View on V-Mart too? - Views on News from Equitymaster
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Does the D-Mart IPO change our View on V-Mart too?
Mar 8, 2017

V-Mart touched an all time high today and is up by 62% since our recommendation in July 2015.

It is important to look at why we recommended the stock in the first place. With its focus on the aspirational demand of middle class in non-metros, V-Mart has steadily grown its stores from 89 in March 2014 to 136 by the end of December 2016. This followed by its asset light business model has allowed it to maintain its relatively high margins in the retail space.

The stock price of V-Mart has increased by 25% in the past one month in the run up to the D-Mart IPO. The market has valued the stock at similar levels to that of the D-Mart. Although both are in the retail space, V-Mart's business model is focused more on apparels and a leased-out model as compared to D-Mart that is focused on Food and Grocery and owns majority of its stores. The retail business is characterized by low profit margins and is susceptible to external factors. The similarities exist in terms of their razor sharp focus in execution and steady expansion of footprint.

As one can see in our recent IPO review of D-Mart, in spite of being a solid business combined with a capable management, the current valuations do not provide a sufficient margin of safety.

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