CM RATING

25/100

Promoted by the Agarwal family (led by Lalit Agarwal), V Mart retail is a New Delhi-based retail player with operations spread across the northern, western and eastern parts of India. It primarily operates in Tier II and Tier III cities with chain of value retail departmental stores with offerings such as apparels, general merchandise and kirana bazaar.

It currently operates in 62 stores with a total area of 5.06 lakh sq. ft. spread across 53 cities and 10 states such as New Delhi, Gujarat, Uttar Pradesh, Bihar, Punjab, Chandigarh, Haryana, Jammu and Kashmir, Rajasthan and Madhya Pradesh with the average size of store of 8,000 sq. ft. Notably, majority of the stores ( 39 stores out of 62) are mini hyper stores retailing apparels, general merchandise as well as kirana, The remaining 23 stores are family fashion stores which are focused on apparels and general merchandise.

Its apparels business vertical includes accessories for men, women, boys, girls and infants, whereas general merchandise business vertical includes non-apparels and home mart and the kirana bazaar business includes FMCG products, packaged food items, beauty and personal care, home care and staples.

It has pioneered in opening stores across the smaller Indian towns & cities. The company intends to further expand, increase reach and widen the presence in Tier-II and Tier-III cities and towns over next three years and utilize the net proceeds of the fresh issue for this purpose. It operates with total store area of 5.06 lakh sq. ft. and plans to add an additional store area of 4.77 lakh sq. ft. by opening 60 more stores over next three years (10 in the current fiscal and 25 each in FY 2014 and FY 2015). It has entered into nine memorandums of understanding in relation to the stores to be opened in FY 2013 and FY 2014. It is in the advance level of negotiations with respect to other locations for opening the stores. Notably, the store size ranges from of 7,000-57,600 sq ft with most of the stores of 15,500 sq. ft. Majority of the stores (around 35 stores) are expected to be in the Bihar, Uttar Pradesh and West Bengal states.

The Company proposes to raise Rs 96.66-87.67 crore and is expected to utilize major share of funds amounting to Rs 69.47 crore to open 60 new stores, Rs 4.39 crore for the expansion of distribution centers and Rs 10 crore for the working capital requirement. Through the pre-IPO placement it has raised 26.25 crore recently. Notably, The issue includes an offer for sale by Naman Finance and Investment Private Limited, the selling shareholder. This is expected to bring down its stake to 8.74% after the issue from 21.74% prior to the issue.

The total revenues has grown at a CAGR of 30.21% from Rs 98.07 crore in FY 2008 to Rs 281.95 crore in FY 2012. Also, PAT grew by 33.04% CAGR from the 3.52 crore in FY 2008 to Rs 11.04 crore in FY 2012. The total revenue stood at Rs 250.06 crore for the eight months ended November 2012, whereas PAT was at Rs 13.08 crore for the same period. Around 75.68% and 80.40% the total income was from apparels and general merchandise and 24.02% and 19.45% of revenue was from Kirana Bazaar in FY 2012 and for the eight months period ended November 30, 2012, respectively.

The apparel vertical is the most important vertical of its business. In FY 2012 and for the eight months period ended November 30, 2012, the apparel vertical contributed Rs 179.17 crore and 171.22 crore, contributing 64% and 68% of sales, respectively.

The average sales per sq. ft. per annum grew by 11% to Rs 6787.0 for the 12 months ended March 2012 and Rs 5226.9 for the eight months ended November 2012. In general, sales per sq. ft. will be around Rs 7,500-8,500 per the departmental store of 25,000-60,000 sq.ft.

The footfalls (average number per day per store) grew by 2% to 501.01 in FY 2012. Notably, the conversion rate was steadily increased over the years from the 59.36% in FY 2008 to 70.01% in FY 2012.

The total debt were at Rs 40.12 crore as on 30 November 2012, which includes short- term borrowings of Rs 38.02 crore. Also, it had 2497 employees on its payroll as of November 30, 2012.

Strengths:

• The apparel segment is one of the major growth drivers of Indian organized retailing.
• The first mover advantage in Tier-II and Tier-III cities, sales from which are growing at much faster rate for almost all consumer items due to faster growth in disposal income and wealth, coupled with increasing awareness and aspiration. Notably, more than 80% of its stores are located in Tier-II and Tier-III cities.
• Strong and diversified procurement network with more than 2,500 registered vendors and suppliers spread across the country

Weakness:

• The modern retailers operational cost is high.
• Its a working capital intensive business and high interest rates pinch them hard.
• Higher competition from the un-organized retailers who traditionally have strong foothold in local areas.
• Track record of retail companies in terms of return to shareholders has not been encouraging.

Valuation:

At the issue price of Rs 195-215, the EPS for FY 2012 (on post IPO equity) of Rs 6.1 is discounted 32-35 times. The annualized EPS for the eight months November 2012 works out to be Rs 10.1, which is discounted 18-20 times. For a small player, the asking P/E is very high.

V-Mart Retail: Issue highlights
Sector	Retail
Sector TTM P/E	102.14
Offer size(in Rs crore)
- On lower price band	87.67
- On upper price band	96.66
Offer size(in no. of shares )
- Fresh issue	2761000
- Offer for sale	1735000
Price band (Rs)	195-215
Post issue capital (Rs crore)	17.96
Post-issue Promoter share holding (%)	58.83
Issue open date	1/2/2013
Issue closed date	5/2/2013
Rating	25/100

 

V-Mart Retail: Financials
	1211(08)	1203(12)	1103(12)	1003(12)	0903(12)	0803(12)
Revenues from the Operations	250.02	281.87	214.75	144.12	142.33	98.07
Other Income	0.04	0.08	0.05	0.04	0.03	0.00
Total Income from Operations	250.06	281.95	214.80	144.16	142.36	98.07
OPM (%)	11.4	10.3	9.0	8.2	5.7	9.3
Operating Profit	28.47	28.94	19.40	11.85	8.19	9.14
Other Income	0.00	0.00	0.00	0.00	0.00	0.00
PBIDT	28.47	28.94	19.40	11.85	8.19	9.14
Interest	4.32	6.74	4.98	4.10	3.25	1.87
PBDT	24.15	22.21	14.42	7.75	4.93	7.27
Depreciation and Amortization	4.77	5.83	4.85	4.17	3.17	1.48
PBT	19.38	16.38	9.57	3.58	1.77	5.79
Tax	6.30	5.34	3.30	1.26	0.72	2.26
PAT	13.08	11.04	6.27	2.33	1.05	3.52
EPS*	10.9	6.1	3.5	1.3	0.6	2.0
* EPS annualized on the post issue equity of Rs 17.96 crore on face value of Rs 10 each All figures in Rs crore Source: Capitaline Databases

 

V-Mart Retail: Objects of the issue
		Estimated Amount to be utilized from Net Proceeds, Pre-IPO placement and Internal Accruals			Amount deployed as on December 15th 2012	Estimated Balance Amount to be Utilized from Net proceeds and Internal Accruals
Particulars	Total Estimates Cost	FY13	FY14	FY15
To Open 60 new stores*	69.70	11.99	28.55	29.16	4.46	69.47
Expansion of distribution centers**	4.39	0.91	1.72	1.76	0.05	4.39
Working Capital	10.00	10.00	0.00	0.00	0.00	10.00
*4 stores which were opened in FY13 up to the date of DRHP have been excluded in the estimate **It has opened a distribution centre of 13000 Sq.ft. in Mundka, New Delhi

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