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V-Mart: Same store growth aids margins
Aug 7, 2015

V-Mart announced the results for first quarter of financial year 2015-2016 (1QFY16). The topline increased by 24% YoY while bottomline increased by 25% YoY in 1QFY16. Here is our analysis of the results.

Performance summary
  • Sales grew by 24% in 1QFY16 on the back of 16% growth in stores.
  • Operating margins dropped marginally from 10.8% to 10.1% over the past year primarily due to rise in manpower, rental and advertisement costs.
  • Lower other income was offset by lower interest and depreciation costs. Net profits went up by 24.4% YoY in 1QFY16.

Financial Performance : A snapshot
(Rs m) 1QFY15 1QFY16 Change
Total income  1,648 2,043 24.0%
Expenditure 1,470 1,836 24.9%
Operating profit (EBDITA) 178 207 16.3%
Operating profit margin (%) 10.8% 10.1%  
Other income 16 8 -50.0%
Interest 10 5 -50.0%
Depreciation 50 40 -20.0%
Profit before tax 134 170 26.9%
Tax 44 58 31.8%
Profit after tax/(loss) 90 112 24.4%
Net profit margin (%) 5.5% 5.5%  
No. of shares (m)#   18.0  
Diluted earnings per share (Rs)   22.0  
P/E ratio (x) *   25.5  
*Based on trailing 12 month earnings

What has driven performance in 1QFY16?
  • With 16% YoY growth in number of stores (from 93 to 108), V-Mart saw its revenues grow by 24% YoY in 1QFY16. The stores occupied 8.8 lac square feet of space versus 7.5 lac square feet at the end of June 2014.

  • This was backed by 8.7% same store sales growth (fashion) and 12.7% volume growth.

  • Sales per square foot too grew by 3% from Rs 794 at the end of June 2014 to Rs 820 at the end of June 2015.

  • With fashion continuing to contribute 92% of sales, the operating margins remained stable at over 10%.

  • While the inventory days for apparel were lower, that for non apparel products moved up higher on YoY basis.

  • The company has managed to bring down the shrinkage rate from 1.5% in 1QFY15 to 1.2% in 1QFY16.
What to expect?
At the current price of Rs 560, the stock of V-Mart Retail is trading at about 25.5 times trailing 12 month earnings. The strong growth displayed by the company, coupled with the fact that the balance sheet risks are negligible, make us comfortable with the stock's valuations. Also for a business that has grown from Rs 3 bn to Rs 7 bn in 3 years, without any dilution in margins, the chances of the higher growth rate adding to shareholder wealth are substantial.

As mentioned in our recommendation, the best price to buy the stock would be in the range of Rs 430 to Rs 460. As a result, we would recommend you to invest around 50% of the sum that you were intending to put into this stock and then perhaps invest the remaining once the stock suffers correction of some sort.

Investors who have already put in 50% of the sum intended to be put in the stock should not buy more at current levels. As and when the stock moves closer to the best buy levels we will certainly update you on the same.

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