Scripscan:V-mart Retail ltd
Long term target:Should continue to provide 30% CAGR for coming 5 years.
Business:V-Mart is a complete family fashion store that provides its customers true value for their money.V-Mart offers fashion garments at down-to-earth prices and over a period of time has emerged as the destination of choice for bargain hunters and the fashionable alike.It primarily operate in tier II & tier III cities with the chain of “Value Retail” departmental stores.The stores cater to the needs of the entire family altogether by offering apparels, general merchandise and kirana goods.“Price Less Fashion” is the Main Motto through which the company believes in providing the latest trends to the upwardly mobile Indians at the best possible price.
Stores:V-mart operates 88 stores across 76 cities in 12 states and union territories(with a total area of 7.1 lakhs sq ft,so round about 8000 sqft per store).The stores are located in prime cities such as Bihar, Chandigarh, Gujarat, Haryana, Jammu and Kashmir, Madhya Pradesh, New Delhi, Punjab, Rajasthan, Uttarakhand and Uttar Pradesh.New stores are set to be opened in smaller towns and cities in regions such as West Bengal, Assam and Uttarakhand etc.The company is among the pioneers in setting up modern ambiance stores or large retail malls across various small towns and cities like including Sultanpur, Ujjain, Motihari and more.
Why I am bullish:-
1)The average sales per sq ft has increased from Rs.507 in 2011 to around 710rs now.The management is confident of increasing the same to even higher rates(ideal sales rate just over 800 bucks according to the management) by meeting the aspirations of people by proving quality fashion at affordable prices.The inventory days has improved from 104 in FY12 to 92 in FY13.Present breakup of product mix is 86:14 in apparel:kirana stores. The company plans to take it to 90:10 in about 2 years which will provide higher margins.
3)What is like the most about the company is its concentration towards the Tier-3 cities,huge growth potential with not much competition(Likes of Trent,Shoppers stops or even Big bazaar would probably never come there in the next 5 years).The store guidance given by them stands at 94 by march 2014.The company plans to add up atleast 25 stores for the coming few years.Its a simple calculation.So 50 stores would come up in next 2 years.It takes about 2500 bucks to set up per sq ft(1300rs store and 1200 bucks inventory).So on a capex of 100crs(again no debt or equity dilution but to be funded by Ipo money and from internal accruals),calculate the sales folks.
4)The company has been an amazing performer over the last several years.Both sales and profits have grown at over 35% CAGR respectively for the last 5 years.The company ended fy12-13 with revenues of 383crs accompanied by a PAT of 18crs.In the 9 months of the present fiscal,it has already done revenues of 395crs and a PAT of 24crs.The company is expected to end the fiscal with revenues of 500 crs and a profit of 29crs(last quarter isnt the strongest quarter and contributes around 17% on an overall basis).Further for fy15,the company is expected to grow by 40%(700crs of revenues and around 42crs of PAT).
4)A lot of retail companies like Vishal killed themselves by opting for massive debts.Retail as a sector always remained an area of interest but due to high leveraging and exorbitant valuations,(industry PE at around 40 as per estimates of Moneycontrol)I gave them a miss.But with V-mart,say debt equity of .2 and quoting at less than 12 times fy15 earnings with management guidance of 30% CAGR growth for the coming decade, gives me the impression of having a massive probable multibagger.A mere multiple of 15 on fy15 earnings, helps me to arrive at the target price of 325 bucks.
Conclusion:The company bunches store locations of about 150-200 km from each other, allowing economies in sourcing and distribution.Working-capital cycle has remained steady over the years, and is on a par with its retail peers. The company enjoys superior margins in comparison to its counterparts on account of lower rentals and meagre employee cost.V-Mart is now concentrating on high margin apparel and non apparel segment where the gross margins are around 35%,much higher than kirana stores which sees around 13% margin.Company should comfortably generate around 20% ROE in the coming many years.This is a very simple yet an attractive business which has got massive growth potential.The FII's and MF's have bought huge amount of shares from the open market in the last few months.Promoters are neat,visionary and seem committed towards making money for themselves and for the minority shareholders.A scrip which has got all the potential to write a scripture for itself.
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