Motilal Oswal Institutional Equities has a "buy" rating on V - Mart Retail with an upside target of Rs 1,200 on the stock.
"V-Mart Retail (VMART) saw Rs 750m sales loss in 4QFY20, which led to an 18.6% drop in SSSG and revenue decline by 3% YoY (7% above estimate). On the other hand, EBITDA fell by 63%. Normalized QTD revenue growth up to 15th March'20 stood at 29%, SSSG 8%, and EBITDA growth 60%.
We cut our FY21/FY22 revenue estimates by 12%/14% and EBITDA estimates by 40%/15%, factoring the impact of the COVID-19 crisis. However, we maintain Buy given VMART's attractive value proposition, comfortable liquidity position, and long runway for growth in tier II and III cities' value retail format," the brokerage firm has stated in its report.
Here are a few other things picked from the report
1. Highlights from management commentary
· The company has opened 50% of stores of the 70% permitted due to operational limitations.
· We expect overall fixed cost reduction of 50%; while rental cost charged during lockdown should be 30% of the total rent, employee cost is expected to reduce by 25%.
· The bulk of inventory is core (45%) and non-seasonal. Hence, the company faces lower risk related to inventory; it has, nevertheless, taken a 0.5% provision.
· All new capex is postponed, including for the warehouse in the eastern region. However, it plans to explore the availability of new attractive locations and replace some of the bottom performing stores with these in the current weak market.
2. Valuation and view
· VMART is strongly positioned to compete with regional and national players in the Value Retailing segment; we expect the business to gain significantly as economic sentiment revives.
· We reduce SSSG growth to -18%/15% and drastically reduce our store adds to 15/60 for FY21E/FY22E; we expect no store adds in 1HFY21 and thus expect the pace to rise in FY22E.
· Thus revenue/EBITDA is expected to grow at a 9%/10% CAGR over FY20-22E, and revival in SSSG could further boost revenue and profitability.
· We assign 23x EV/EBITDA, arriving at a TP of INR2000. VMART currently trades at FY21/FY22 EV/EBITDA of 42x/17x; we maintain Buy given its astute inventory management skills, expertise in affordable segments, and strong brand recall in regions of operation.
"We maintain Buy given VMART's attractive value proposition, comfortable liquidity position, and long runway for growth in tier II and III cities' value retail format," the brokerage firm has stated.