Recommendation From Department Stores Sectors

Kiran Dhawale

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

V-Mart Retail 

RETAILING THE GROWTH STORY 

HERE IS WHY Promising order book Diversified business model Growth prospects in the infrastructure sector 

V-Mart Retail Limited is in the business of readymade garments and accessories. It offers products across three verticals, including apparel, general merchandise (nonapparel and Home Mart) and Kirana Bazaar. The company has a huge variety of apparels and accessories for all age groups. V-Mart has based its stores to cater mostly to the under-consumed parts of the country. 

Between FY08-18, the company has expanded its store base from 22 to 171, and despite this, the company has kept a debt-free balance sheet, maintained high operating profitability and a high ROCE. The company has incurred capex through internal accruals and IPO proceeds in 2013. The company is likely to add approximately 30-35 stores each year, which will aid in revenue growth. 

The company has an advantage of geography as the company operates in areas of low rental cost. Rental cost makes up to 50 per cent of expenses of retail companies. Thus, having stores in non-metros has a structural advantage. 

The company has been quite successful in building customer loyalty by improving the in-store experience, as well as by understanding the regional needs of the people. The cluster-based expansion plan has helped V-Mart enhance its brand visibility. As a new store is set up in the close vicinity of existing stores, residents have a better recall, thereby creating better visibility of the brand. Another advantage of setting up stores in a cluster is that it helps the company understand customer preferences in a better way as demographics change every 100- 150 km. This way, the company can cater to the varied customer preferences and taste. The third advantage of having a cluster-based approach is cost-efficient logistics. 

In FY15, the company shut down three warehouses and now has only one centralised facility at Bilaspur in Haryana. This decision has helped the company to improve the logistics, reduce order processing and lower close-tooptimal inventory replenishment cost. The company has doubled its warehouse space to 0.22 mn sq ft after centralising its operations. The effects of planning will be seen in the next few years. 

The net sales of the company on a standalone basis grew 14 per cent to Rs 361 crore in Q1FY19 versus Rs 315 crore in the same quarter of the previous year. The PBIDT of the company has witnessed a growth of 16 per cent YoY to Rs 43.21 crore in Q1FY19 as against Rs 37 crore in Q1FY18. The PAT of the company has jumped by about 10 per cent to Rs 24 crore in Q1FY19 as compared with Rs 22 crore in Q1FY18. 

On the valuation front, the company is currently available at PE multiple of 48.34 on its TTM earnings. The company’s return on equity (RoE) stood at 25.27 per cent and its return on capital employed (RoCE) stood at 36.06 per cent. Considering the above factors, we urge our reader-investors to BUY this scrip.

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