Q1FY24 Review: V-Mart Retail: Hopeful of a pickup in the festive period

11 Aug 2023 , 01:00 PM

V-Mart’s Q1FY24 performance was below our estimates on weak expectations, with same store sales declining by 2.7% and higherthan-expected losses in LimeRoad vertical. Management is hopeful of a recovery in Q3, driven by festive demand. Analysts of IIFL Capital Services downgrade their adj. Ebitda estimate by 19% in FY24, but broadly maintain their FY25/26 estimates. They forecast adj. Ebitda margin to recover from 3.7% in FY23 to 7.5% in FY26, which is contingent on multiple events playing out in a timely manner. Maintain REDUCE with a target price of Rs2,200. 

Below estimates: 

V-Mart reported Q1FY24 results below our estimates. Net sales grew 15.4% (in-line) with retail sales growing 12.5% and LimeRoad recording a sales of Rs174mn (NMV of Rs445mn). Same store sales declined by 2.7%, driven by ASP reduction as same store volumes were up 2.9%. While eastern and north eastern regions exhibited strong demand, performance was weak in states such as Uttar Pradesh, Andhra Pradesh and Telangana. Overall Ebitda (29% below estimate) declined by 41% with Ebitda margin contracting 736bps to 7.7%, driven by higher marketing spends in LimeRoad. 

Hopeful of a pickup in Q3: 

With Q2 being a lean season for the company, management is hopeful of a pickup in demand during the festive season in Q3. While inflation continues to weigh on consumer wallets, the company has taken pricing actions across its portfolio. Also, management expects store addition pace to pick up from H2, with Q1 witnessing only 8 store additions on a net basis. While Ebitda losses in LimeRoad at Rs259mn were on the higher side, management reiterated its guidance of Rs550-650mn Ebitda losses in LimeRoad in FY24. 

Adj. Ebitda downgrade of 19% in FY24: 

Analysts of IIFL Capital Services factor in the Q1 miss and a gradual recovery in demand going forward. They downgrade their adj. Ebitda estimate by 19% in FY24, impacted by negative operating leverage from the weak SSS growth (estimate of 3% in FY24) and LimeRoad losses (estimate of Rs650mn). They broadly maintain their FY25/26 adj. Ebitda estimates factoring in recovery in SSS growth, turnaround in legacy Unlimited stores and moderating losses in LimeRoad. Maintain REDUCE with a target price of Rs2,200.