V-Mart Retail: Promotion Costs Dent Profits

V-Mart Retail Ltd declared results for the quarter ended September 2016. The company reported a revenue growth of 21% YoY during the quarter. While the profits slipped in the negative territory as compared to a profit of Rs 9.5 million in the same quarter in the preceding year.

Performance Summary

• Revenues grew by 21% YoY during the quarter. The revenues increased as the company added eight new stores during the quarter taking the total store count to 134. Additionally, the company spent large chunks of money after promotion which in-turn led to higher sales.
• Same store sales growth (apparel) grew by 8% YoY during the quarter. While, same store volume growth grew by 4% YoY during the quarter.
• The average transaction size (overall billing for a customer) during the quarter stood at Rs 616 as compared to Rs 565 in the same quarter last year. Average selling prices moved upwards to Rs 180 as compared to Rs 170 a year ago. Fashion sales contributed to 92% of sale. While, kirana contributed the balance. The proportion of fashion sales will continue to rise going forward as the new stores won't have a section for kirana.
• Footfalls grew by 17.9% YoY to 5.5 million during the quarter. However, the conversation rate fell significantly by 3.6% to 60.6% during the quarter on the back of lower disposable income in the hands of the people.
• The company's net profits slipped in the negative territory due to higher promotions, discounts and write-offs during the quarter. Manpower costs too have increased significantly. Discounts and promotions have increased on the back of increasing competition. The management stated that many un-organized players have opened their stores in close proximity to their's, in-turn forcing the company to adopt a discounting model in order to not lose market share. As per the management, around 63 out of their total 134 stores are facing heightened competition from the unorganized players. And all this competition has come in the past six-eight months. Competition coupled with increasing costs impacted their bottom line.
  
  

  Standalone financial performance

  (Rs m)	2QFY16	2QFY17	Change	1HFY16	1HFY17	Change
  Net sales	1,618	1,959	21.1%	3,662	4,230	15.5%
  Expenditure	1,560	1,929	23.7%	3,394	4,021	18.5%
  Operating profit (EBDITA)	58	30.1	-47.7%	268	210	-21.9%
  EBDITA margin (%)	3.6%	1.5%		7.3%	5.0%
  Other income	1.4	2.2	60.9%	7.9	21.0	167.2%
  Depreciation	39.5	54.1	36.8%	80.4	105.9	31.6%
  Interest	6.4	8.5	33.0%	12.3	16	26.3%
  Profit before tax	13	-30	-331.6%	183	109	-40.5%
  Tax	3.6	-11.9		61.9	35.8
  Effective tax rate	27.5%	39.5%		33.8%	32.8%
  Profit after tax	9.5	-18.3	-293.1%	121.4	73.3	-39.6%
  Net profit margin (%)	0.6%	-0.9%		3.3%	1.7%
  No. of shares (m)					18.1
  Diluted earnings per share (Rs)*					12.1
  Price to earnings ratio (x)					40.2

  (*On a trailing 12-month basis & excluding exceptional Items)