Q2FY24 Review: V-Mart Retail: Weak performance continues

8 Nov 2023 , 01:35 PM

V-Mart reported a sub-par quarter with sales growth of 8.5% and pre IND AS Ebitda loss of Rs498mn in Q2FY24. Same store sales declined by 6% as the company took price corrections to attract demand. Demand in Q3 so far has been satisfactory and management has guided for 50+ store additions in FY24 (vs. 27 YTD). Analysts of IIFL Capital Services downgrade their adj Ebitda estimates by 34%/15%/14% for FY24/25/26 and build a gradual recovery in Ebitda margin in the medium term. Maintain REDUCE with a TP of Rs1,700. 

Large miss: 

V-Mart reported a weak Q2FY24 performance with same store sales declining by 6%, even as same store volumes grew by 6% during the quarter. Reported Ebitda margin at 0.1% was significantly below analysts of IIFL Capital Services estimates. Adjusted for IND AS, Ebitda loss was Rs498mn and excluding LimeRoad losses, it was a loss of Rs300mn (-5.7% of retail sales). The company added six stores in Q2 on a net basis, taking the store count to 437 stores. 

Store addition guidance of 50+ stores in FY24: 

V-Mart has taken several corrective steps in the past year – price corrections to attract back its core, value conscious consumer, in addition to working on merchandise and store look and feel. With these actions in place, management is confident of a revival in SSS growth trajectory, also aided by a normal monsoon and strong festive season. Performance so far in Q3 has been satisfactory with good demand witnessed during the Durga Puja period in eastern India. Management is confident of adding 50 stores in FY24 (vs. 27 added YTD including Q3 so far). 

Adj Ebitda downgrade of 34%/15%/14%: 

Analysts of IIFL Capital Services downgrade their FY24 Ebitda estimate to factor in the Q2 miss and lower store additions vs. earlier. The downgrade in FY25/26 estimates is lower at 15%/14%, as they build in gradual recovery in Ebitda margin. Analysts of IIFL Capital Services forecast adj Ebitda margin at 2.7%/5.1%/6.5% for FY24/25/26, which is contingent on improvement in V-Mart margins (driven by pick up in SSS growth), turnaround in legacy Unlimited stores and moderation in losses pertaining to LimeRoad. While the stock has corrected 16% in the past month, it lacks positive triggers in the near term. Maintain REDUCE with a target price of Rs1,700.