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May 6, 2015

V-Mart Retail Ltd. (VMart)-Edelweiss

  has reported strong revenue growth for Q4FY15. VMart’s revenues grew by 22.9% YoY for Q4FY15 primarily led by superior same store volume growth (at 10%). EBITDA grew by 19% on the back of depressed gross profits due to higher discounting. PAT witnessed a growth of a 47% at INR 1.6cr. The company witnessed strong demand due to aspirational buying supported by good wedding season sales. We believe that VMart can sustain CAGR of 32% in revenue and 19% in PAT over FY15-FY17E. We continue to remain bullish on VMart’s long-term growth story.
Revenue growth at 22.9%; driven by superior Same Store volume growth 
VMart recorded a top line of INR 171 cr for Q4FY15 i.e. an impressive 22.9% growth over Q4FY14 with the fourth quarter being seasonally weak quarter. Same Store Volume (Fashion) growth has been the key driver of revenues for this quarter. Same Store Volume growth (Fashion) was reported at an impressive 10%. Although VMart did witness a subdued Holi; the strong revenue numbers were led by aspirational buying and good wedding season sales. Average Selling Price saw an increase of 3.9% yoy and stood at INR261 for the fashion segment. Average Selling Price stood at INR191 up 21.8% yoy on back of a reduced contribution from the Kirana segment which declined to 9% this quarter. Contribution of ‘Fashion’ segment to total revenues stood at 91% this quarter.
EBITDA growth at 19%; PAT growth stood at 47%
EBITDA reported a 19% yoy growth and stood at INR 6.7 cr. The EBITDA margins stood at 3.9% i.e. a yoy decline of 10bps. This EBITDA margin decline was largely due to a 155bps decline in Gross margins on back of higher discounting undertaken by VMart for the quarter as an inducement for customers. Q4FY15 PAT grew by 47.6% to INR 1.6 cr. 
No store closure witnessed this quarter
VMart’s store strength at the end of Q4FY15 stands at 108 across 12 states. VMart saw 19 store additions this year with one store addition at Purnia in Bihar and no store closures in this quarter. The total retail space reported as at the end of Q4FY15 was 8.8 Lac sq.ft i.e. an increase of 0.07Lac sq.ft over the last quarter. The management is confident of opening 25 new stores in FY16. VMart plans to foray into nearby territories in states of Odisha and West Bengal in keeping with its cluster based expansion philosophy.
Improved Cash Conversion Cycle due to prudent inventory management
For the year FY15, VMart has seen an improvement in its Cash Conversion Cycle primarily on back of reduction in inventory days from 106 days in FY14 to 93 days in FY15.
Outlook and valuations: Maintain ‘Buy’
We believe that VMart will grow its revenue at a CAGR of 32% and PAT at 19% CAGR over FY15-17E. VMart’s strong revenue visibility, RoE in excess of 20% supported by focus on profitability, better working capital management and stable debt-equity ratio are positives for the stock. The stock is currently trading at 17.5x FY17E EPS of INR 30.3/share. We continue to remain bullish on VMart’s long-term story.

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