Recommendation From Trading Sector
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This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
Topline expanded at CAGR of 78.5 per cent over FY12-15
Available at half of the book value
Continues to focus on expansion in eastern India
India's retail industry is expected to more than double its quantum to USD 1.3 trillion by 2020. With the changes in FDI policy, the organised retail sector will get the much-awaited boost. With an increase in brand-and fashion-conscious population, high potential growth in consumer expenditure, growing middle class are some of the factors due to which the macro trends for the sector looks favourable. Organised retail share in total retail sector is expected to assume 24 per cent share of the total retail market in India in 2020 from 8 per cent in 2012. Among organised retail segments, mass grocery and apparel are the segments growing faster than other segments. Therefore this time we are focusing on a company which is engaged in this space.
V2 Retail earlier known as Vishal Retail is engaged in the business of retail trade of garments, textiles, accessories and FMCG in India. It is showing green shots of growth after coming out of its huge debt burden and promoters learning some lessons the hard way. We see renewed focus on debt management, in particularly short term debt, inventory management and growth in phased manner.
The company's present strategy is to shift to the products which have higher shelf life and growth. The company has stores in tier II and tier III cities and has been receiving good response from consumers mainly due to product range and pricing. It has recently launched stores in Gorakhpur, Purnia and Azamgarh. The company will continue to focus on expansion in eastern India. Also, a marked learning for the company is to see that the store is self-sustaining before expanding further. The strategy of the company is to buy the merchandise rather than manufacture the same and it has tied up with TCS for managing its inventory. The dependence on short term debt is lesser and the inventory management is better.
On financials front, the company has expanded at CAGR of 78.5 per cent over FY12 to FY15 and reached TTM sales of Rs 306.15 crore as of Dec 15. Net profit has turned positive from FY15 and touched Rs 15.6 crore as of Dec2 015. The company has debt equity ratio of 0.25 as of March 2015 which is reasonable. We believe that company is keeping tab on the financial management by having inventory days of 82.49 and payable days of 42.14 as of March 2015. The EBITDA margin also expanded by from 1.8 per cent in FY14 to 9.7 per cent in FY15 and 11.2 per cent on TTM basis in Dec15.
Company is currently valued at P/E of 8.05 with TTM EPS of 6.26 and P/B of 0.46 with book value of Rs 274.74crores as of Mar15. We believe the company has the potential to reach the P/B of 1. Hence we expect the company's stocks to see an upside of 75 per cent from the current levels.