All cylinders firing; expect re-rating to continue
V2 Retail (VREL) posted a 64% YoY growth in revenue to INR380cr on the back of a strong SSSG of 36% and footprint expansion, reflecting a strong demand. The company added 14 gross new stores (closed 2) during the quarter, with total store count at 139 by the end of Q2FY25. Total area stood at 14.82lksq.ft. with a growth of 35%YoY. Company’s sharp focus on growing its revenue/sq.ft. (growth of 30% during the quarter), assortments & designs and pricing strategies is yielding the results for the company.
Value retailing in India is undergoing a paradigm shift led by consumers being more discerning and aspirational and hence the need for (a) better shopping experience (shift from unorganized to organized); (b) fashionable product (fast fashion); (c) better value proposition (affordability); and (d) increasing wardrobe size.
VREL’s competitors have also posted strong numbers for the quarter and the industry continues to outpace overall discretionary consumption. We upgrade our FY25/26 estimates on account of aggressive store additions and better than expected SSSG. We think VREL deserves a better multiple given its high growth prospectus and currently trading at discount to its peers. We foresee more upgrades in upcoming quarters, given strong demand momentum. We reaffirm ‘BUY’ with a revised TP of INR1,754 (18x FY26E EV/EBITDA).
Plans to add 60 new stores
VREL added 12 stores in the H1FY25, and its newly added stores are picking up well. The management plans to add 60 new stores in FY25 with maintaining double digit SSSG for the rest of the year. VREL’s store rationalisation program is now complete, and its new stores are witnessing healthy throughput and SSSG from mature stores is also strong. We are upgrading our FY25 store addition/SSSG target to 50/20% from 45/15% earlier. The management in its recent interviews has given an aspiration to reach INR1,800cr sales in FY25. We expect 49% revenue CAGR over FY24–26 led by an aggressive push towards store additions and higher throughput.
Valuation and view
VREL is targeting 30–40% sales CAGR over the next three-to-four years which can result in margin expansion and improved store metrices. It plans to maintain RoE at 20%. Drivers such as new store expansion and higher revenue/sq. ft. can lead to a healthy growth in revenue and EBITDA. Given the upgrade to its store addition targets and higher-than expected SSSG, we raise our FY26 revenue estimate by 13%. As peers such as V-Mart Retail and Zudio have over ~500 stores each, we believe VREL can achieve healthy growth rates over a longer period. With aggressive and profitable growth, we upgrade our target multiple to 18x FY26 EV/EBITDA (from 15x earlier) and reaffirm ‘BUY’ with a revised TP of INR1,754 (from INR1,352 earlier).
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