Buy This Small Cap Retail Stock For 51% Potential Return, Announces Fresh Acquirement: Motilal Oswal

Ahead of Diwali Motilal Oswal has picked V-Mart Retail Limited for a target price of Rs 4,210 per share. V-Mart is a complete family retail store chain offering apparel, footwear and accessories for men, women and kids. The company also offers a wide range of home furnishings, toys, general merchandise, utensils, tableware, and other home utility items. Recently, the acquired company acquired Limeroad.com to enter the online marketplace. V-Mart is a small-cap stock having a market cap of Rs 5,514.20 crore.

Stock Outlook, Returns & Potential Upside

The current market price (CMP) of V-Mart stock is Rs 2,787.65 per share on NSE. Currently, trading 1.41% up from its previous close of Rs 2,749 per share. Today it opened at Rs 2.765 per share. Its 52 week low level is Rs 2,406.85 and 52 week high is Rs 4,848.80, respectively.

The stock over a year has given 37.84% negative return, however, it has given 6.08% positive return in the past 3 months. In the past 3 years it has given 33.5% positive return and in the past 5 years, it has given 94.12% positive return. 

According to the given target price of Rs 4,210 per share, the stock of the company is likely to surge 51% from its current level.

Deal contours

VMART acquired Limeroad (a value fashion online marketplace player) for INR311m (0.45x P/Sales on FY22). The deal will help VMART strengthen its online presence in Tier 2/3 markets. VMART will fund the acquisition through internal accruals as it has a cash balance of INR1.6b. 

Limeroad, a value player in the online space

Incorporated in 2012, Limeroad has been offering fresh unbranded fashion products with 17m value shoppers in the online marketplace. Given its value proposition, Limeroad focuses on a very light app, and smooth online experience. Women's fashion has contributed 65% of the business, having a strong presence in the INR 500-1,000 ASP segment. At peak, Limeroad delivered 250,000+ app downloads per day, and had a #3 All India Shopping Play Store ranking. It achieved a GMV of INR7b. 

To invest INR1.5b more to achieve profitability, existing team to continue 

VMART plans to further invest INR1.5b to scale up the business and achieve profitability. Limeroad will operate as an independent entity under the VMart label and the CEO Suchi Mukherjee (founder) will continue with her role along with the COO Ankush Mehra (co-founder). Management expects the market to report 39% CAGR over the next five years. 

EBITDA could dilute by 5%

Limeroad saw its revenue decline to INR693m in FY22 from INR1.8b in FY20. However, EBITDA loss reduced to ~INR150m in FY22 from INR340m in FY20. This should dilute the blended EBITDA by 5%/10% on normalized FY23E EBITDA/ Pre IND AS 116 basis, respectively.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.