Following a healthy 7.6% same-store sales growth (SSG) and 19.8% area addition, revenue grew 22.8% in 3QFY15 for V-Mart Retail (VRL) – even in a challenging environment and weak Diwali festival demand – to Rs2,403mn, 5.4% below our estimate. On account of a 94bps gross margin improvement and control over overheads, operating margin rose 121bps to 14.4%, 182bps above our estimate, resulting in a strong 34.1% growth in EBITDA to Rs347mn, 8.2% above our estimate. Following the change in depreciation method, reported net profit grew 70.5%. Adjusted net profit grew by a healthy 38.7% to Rs195mn, 7.3% above our estimate. On account of weak demand, we have cut our net profit estimates by 6.9%/5.8% for FY16/FY17, respectively. Healthy operating cash flow of Rs928mn is expected to meet its entire capex requirement. Strong revenue/net profit CAGR of 27.1%/31.7%, respectively, coupled with a flat net D/E ratio of 0.04x and a 553bps improvement in RoCE to 20.2% over FY14-FY17E is likely to lead to a strong re-rating of VRL. We have retained Buy rating on VRL with a revised target price of Rs834 (Rs790 earlier) based on 26.0x/13.8x FY17E P/E and EV/EBITDA, respectively (from 27x average FY16E-FY17E EPS earlier).
Dewan Housing continues to perform well on growth and asset quality front. While margins have inched up, Ratings upgrade coupled with reduction in base /wholesale rates are likely to aid margins. Moreover management’s commitment to bring down cost structure can provide delta to earnings. We expect AUM CAGR of 27% over FY14-17, and estimate RoA/RoE at 1.4%/20% for FY17. Better than expected growth and cost control should provide upsides to our RoA/RoE estimates. Valuations at 1.3x/1.1x FY16/17E ABV is attractive and at significant discount to peers (refer exhibit 1). Strong visibility on business growth, superior asset quality and improving return ratios. Reiterate Buy with target price of INR724, valuing stock at 1.75x FY17E adjusted book value.
Volatility in gold prices remains the key risk, but we believe that demand for gold will remain strong thereby expect churning in good loan book for the industry. At CMP of Rs 222, MFL trades at 1.73x and 1.52x its FY16E and FY17E BV and 10.38x and 8.35x its FY16E and FY17E EPS respectively. We believe that Muthoot being the market leader is best positioned to benefit from improving business sentiment in the gold loan industry as asset quality concerns are likely to abate. We initiate coverage on the stock with a BUY rating on the stock and a target price of Rs 292 (2.0x FY17E ABV) implying a 32% upside.
SHTF’s core earnings (+11% YoY) and operating profits (+9% YoY) were in line with estimates. However, higher provisions (ann. 2.3%) led to the PAT (+3% YoY) coming in marginally below estimates. Key positives include third consecutive quarter of NIM improvement, stable asset quality and improving growth trends. SHTF is at the inflexion point and remains the preferred play on the anticipated CV cycle revival. Further positives are improving macros, falling interest rates and a better earning profile of its borrowers. We thus expect SHTF’s RoA to inch back to +3.1% from 2.5/2.9% in FY15E/14. Niche business segment (used CVs), higher market share and a well cushioned B/S (CRAR: 21% & PCR: 80%) too provide comfort. Maintain BUY with a TP of Rs 1,248 (2.3x FY17E ABV).