V-Mart Retail Research Report By Nirmal Bang

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).

V-Mart-3QFY15 Result Update-27 January 2015