Q3FY24 Review: V-Mart Retail: Focus on improving profitability

8 Feb 2024 , 12:28 PM

V-Mart’s Q3FY24 performance was better than analysts of IIFL Capital Services estimates at Ebitda level, driven by better gross margin and lower employee costs. Same store sales (SSS) growth recovered to 4% YoY, driven by improvement in demand and pricing interventions taken by V-Mart. Management expects accelerated pace of store closures and moderation in LimeRoad losses in the near term as the company focuses on improving profitability, which is still a long and gradual process in analysts of IIFL Capital Services view. Maintain REDUCE with a target price of ₹2,100. 

Above estimates: 

V-Mart reported Q3FY24 performance which was above analysts of IIFL Capital Services estimates. Net sales grew 14.4% while Ebitda grew 15% (11% above their estimate) driven by better gross margin performance and lower employee costs. Losses at LimeRoad have moderated as the company focuses on profitability in this format. Same store sales grew 4% (vs. a decline of 6% in Q2) which is a combination of some demand recovery and pricing interventions taken by the company even as the benefits of festive timing were offset by a delayed winter. 

Accelerated pace of store closures in near term: 

Management expects ~20 store closures in Q4 and it would be monitoring performance of 30 more under-performing stores. Net of store closures, both FY24 and FY25 are likely to be subdued in terms of store openings for V-Mart, as the company focuses on improving margins. Within LimeRoad also, V-Mart expects to curtain ad-spends and aim for modest growth with Ebitda breakeven estimated by end of FY25. 

Broadly maintain adj Ebitda estimates: 

Analysts of IIFL Capital Services factor in store closures as guided by the company in Q4FY24 and FY25 and moderation in LimeRoad losses, resulting in lower sales but higher margins. They estimate the Q3FY24 pre IND AS Ebitda margin at 9.4% which is a reasonable improvement vs. recent quarters, but it is still significantly below pre Covid Q3 Ebitda margin average of ~15%. While the company is on the right track in terms of prioritising profitability, it is still a gradual and long road to recovery in analysts of IIFL Capital Services view. Maintain REDUCE rating with target price of Rs2100.