Heranba Organics Private Limited has started Commercial Production from our Sarigam Unit situated at GIDC, Sarigam,
Taluka-Umbergaon, District-Valsad, Gujarat.

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After researching through the web, I have realized that, after 2020 crash, and since that point onwards mainly the bull market has continued with some small corrections during 2022. The corrections were not more than 8% or so at a given point and hence there is a possibility that, this correction also may not last long.

For value investors like me, this throws up multiple opportunities since some of the stocks on Watch Lists come in my Buy Zone. But as pointed by Hitesh Sir, how much to buy in such times is the difficult question and Answer is not simple.

Also, during such corrections, stocks with weak fundamentals like low PAT growth, Lower ROCE often correct more and it is relatively easier to distinguish between high quality and low quality stocks. Sometimes even high quality stocks correct sharply because they are more overvalued than low quality stocks.

Just thought of adding some observations.

Many times, not doing any thing serves the purpose in such corrections. An investor should wait and watch for the positive signs if at all it happens.

Key points from the Q1 FY25 earnings call:

Key Financial Performance

1. Record Quarterly Sales: V2 Retail achieved its highest-ever quarterly sales in Q1 FY25, with revenue from operations reaching INR 415 crores, up 57% year-on-year.
2. Profitability: Gross margin stood at 29%, and EBITDA grew by 56% to INR 55.5 crores. The net profit (PAT) increased by 162% to INR 16.3 crores.
3. Same-Store Sales Growth (SSG): The company reported robust SSG of 37% and volume growth of 55%, driven by a high proportion of full-price sales (93%).

Operational Highlights

1. Store Expansion: V2 Retail added 10 new stores in Q1, bringing its total count to 127 stores. The company plans to add 40-50 new stores this year, primarily in Tier I and II cities, and underserved markets.
2. Private Label Growth: The contribution from private labels rose to 80%, with a target to reach 100% in the next 1-2 years. This strategy is expected to enhance brand identity and customer loyalty.
3. Inventory Management: Inventory aging improved, with the share of stock over a year old dropping to 7% from 23% two years ago. The goal is to reduce aging inventory further.

Strategic Focus

1. EBITDA and Margin Goals: Targeting a pre-IndAS EBITDA margin of 8-9% and a PAT margin of 4.5-5.5% for FY25.
2. Expansion Strategy: Planning to invest INR 110 crores in store expansion, inventory, and working capital, funded through internal accruals.
3. Targeted ROE: The company aims to achieve an ROE of 20-22% through increased sales and improved operational efficiency.

Competitive Landscape

1. Positioning Against Competitors: V2 Retail faces competition from brands like Zudio, Reliance’s Youthstar, and others. However, it differentiates itself with lower average selling prices and a focus on family shopping, especially in kids’ wear.
2. Pricing and Margin Strategy: Emphasis on cost-effectiveness allows V2 Retail to pass savings to customers without reducing gross margins.

Key Challenges

1. Store Profitability: The company has worked to ensure each store contributes positively to EBITDA, with no EBITDA-negative stores this year.
2. Cost Management: Rising employee costs due to new store openings impacted margins, but the company aims to maintain cost efficiency through better technology and supply chain improvements.

Future Outlook

1. Growth Projections: The company expects revenue and EBITDA to grow by 30-40% annually, supported by continuous demand and a favorable market.
2. E-commerce Entry: V2 Retail is evaluating an omnichannel approach, using store inventories to fulfill online orders within city limits, potentially reducing logistics costs.

Latest Q2FY25 Update –

Disclosure – Invested