V2 Retail (VREL) offers a portfolio of apparel and lifestyle products and caters to the neo middle class in Tier II and III cities. The company operates on the values of ‘value and variety’ (V2) and sells apparels at affordable prices (ASP of INR280). The company has a strong presence in North and East India and operates 117 stores across 17 states and more than 89 cities with a total retail area of 12.5lk sq. ft. Over the last few quarters, VREL has posted a strong SSSG on greater throughput and by rationalising its store profile which led to a positive operating leverage and return to profitability. Going forward, VREL plans to improve its throughput and open stores aggressively through internal accruals. The company is a strong candidate for a valuation re-rating on better store economics, aggressive growth plans and size of opportunity. We initiate coverage with a ‘BUY’ rating and TP of INR831 (10x FY26E EV/EBITDA), which offers a potential upside of 77% from its CMP
Valuation and view
VREL turned around its business with a 35%/70% growth in revenue/EBITDA in 9MFY24. Drivers such as new store expansion and a healthy increase in revenue/sq. ft. can lead to a healthy growth in revenue and EBITDA. RoE expansion to over 20% in FY26E from -4% can trigger a valuation re-rating. The scope for expansion for VREL is large as India has more than 5,000 Tier IV towns. This, along with its healthy store economics, gives it a payback period of less than three years. As VREL’s peers such as V-Mart Retail and Zudio have 500+ stores each, we think that it can achieve healthy growth rates over a longer period. We initiate coverage with a ‘BUY’ rating and TP of INR831 (10x FY26E EV/EBITDA).
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