Equity Research INDIA

September 27, 2020

BSE Sensex: 37389

ICICI Securities Limited

V-MART Retail BUY
is the author and Best play in value fashion segment; initiating with BUY Rs2,031
distributor of this report
V-MART (value fashion retailer) is well positioned to capture growth opportunities
in tier 2-4 cities with aggressive store openings and first-mover advantage. It has
already built a successful and highly profitable business model. However, near
Initiating coverage term focus would be on preserving cash through cost reduction, rationalising
capex and optimising working capital. Rising competition, increasing share of
new stores vs matured stores, and investment in supply chain will keep margin
Branded range-bound and return ratios steady. We like the company’s revenue growth
potential, timely execution and best-in-class return ratios. Initiate with BUY and
Apparels DCF-based target price of Rs2,500/share on Sep’22E.
Target price: Rs2,500  Large opportunities in value fashion segment: Tier 2-4 markets provide huge
opportunities based on demand and under-serviced appetite for quality products.
Shareholding pattern V-MART, being one of the low-cost value fashion retailers, will be key beneficiary as
Dec Mar Jun it bridges this gap to match consumer aspirations. Company currently has 266
'19 '20 '20 stores in 191 cities across 19 states (out of 600+ districts and 5,000+ cities and
Promoters 52.0 52.0 51.2 towns). Post lockdown relaxations, currently >90% of network is operational and has
Institutional
investors 36.4 38.6 40.3 witnessed a positive recovery trend in sales.
MFs and others 10.3 15.1 17.2
FIs and Banks 0.0 0.0 0.0  Aggressive store additions to resume from FY22E: V-MART’s revenues have
FIIs 26.1 23.5 23.1 grown at 18% CAGR led by network additions which have more than doubled over
Others 11.6 9.4 8.5
FY15-20 coupled with average SSSG of ~6%. Management usually targets 18-20%
Source: BSE
area addition p.a. through cluster-based expansion strategy. Given Covid-19
disruptions in FY21, the store addition plans are likely to take a halt in FY21E; but
Price chart should resume from FY22E. Accordingly, we model average 39 stores additions p.a.
with area additions at 12% CAGR over FY20-23E.
3,500
3,000  Margins to remain range-bound; albeit industry leading: Company’s focus is on
2,500 market share gains by passing the cost benefits over margin expansion. Increasing
share of new stores and investment in supply chain (warehouse, omni channel, etc.)
2,000
(Rs)

would keep margins range-bound. Nevertheless, margins would remain industry-

1,500 leading on the back of its low costs structure (low rentals and A&P spends), cluster-
1,000 based store expansion strategy, better negotiation terms with vendors, & operating
500 leverage. The steep cost arbitrage also acts as safety tool vs online players.
Sep-18
Sep-17

Sep-19
Mar-20
Sep-20
Mar-18

Mar-19

 Lean balance sheet; better than peers return ratios: V-MART’s entire growth in
the past few years has been funded via internal accruals and IPO proceeds. The
company is net cash since FY16 and guided to exit even FY21E with same status.
Recently, the company has passed an enabling resolution to raise upto Rs5bn to
explore various growth opportunities. We model FCF generation of Rs620mn post
factoring-in working capital blockage and capex of Rs1bn and Rs1.8bn respectively
over FY20-FY23E. V-MART’s industry-leading return ratios (300-500bps higher than
peers) are likely to remain steady at 16-17% over FY21E-FY23E.
 Initiate with BUY: We model 11-14% revenue / EBITDA / EPS CAGR over FY20-
FY23E after factoring-in 45% YoY drop in EBITDA in FY21E. DCF based our target
price on Sep’22E implies 18% EBITDA CAGR over the next 10 years discounted at
11% WACC and assuming 6% terminal growth.
Market Cap Rs36.9bn/US$500mn Year to Mar 2020 2021E 2022E 2023E
Reuter/Bloomberg VMAR.BO/VMART IN Revenue (Rs mn) 16,630 11,531 19,224 23,579
Shares Outstanding (mn) 18.2 EBITDA (Rs mn) 1,324 732 1,538 1,941
52-week Range (Rs) 2456/1348 Net Income (Rs mn) 799 292 843 1,089
Free Float (%) 48.8 % Chg YoY 11.9 (63.5) 189.3 29.2
FII (%) 23.1 P/E (x) 46.1 126.5 43.7 33.8
Research Analysts:
Daily Volume (US$'000) 777 CEPS (Rs) 62 37 69 87
Dharmesh Shah Absolute Return 3m (%) 18.8 EV/E (x) 27.6 49.8 23.7 18.6
shah.dharmesh@icicisecurities.com
+91 22 6637 7480 Absolute Return 12m (%) (6.4) Dividend Yield (%) - - 0.1 0.1
Krupal Maniar, CFA Sensex Return 3m (%) 6.9 RoCE (%) 18.4 6.0 15.7 17.4
krupal.maniar@icicisecurities.com Sensex Return 12m (%) (2.6) RoE (%) 18.4 6.2 16.0 17.5
+91 22 6637 7254
Please refer to important disclosures at the end of this report
V-MART Retail, September 27, 2020 ICICI Securities

TABLE OF CONTENT

Story in charts .................................................................................................................. 3

Initiate with BUY and target price of Rs2,500 ............................................................... 4
Large opportunities in value fashion segment ............................................................. 5
Aggressive store additions to continue from FY22E ................................................... 7
Margins to remain range-bound ................................................................................... 14
Lean balance sheet; return ratios to remain steady .................................................. 18
Financials- pre-IndAS 116 ............................................................................................. 21
Key risks ......................................................................................................................... 23
Company background ................................................................................................... 24
Financial summary ........................................................................................................ 25
Annexure: Index of tables and charts.......................................................................... 26

2
V-MART Retail, September 27, 2020 ICICI Securities

Story in charts
Store additions to continue with a halt in FY21E Store economics suggests payback period of 2.5
years
Particulars Rs/sqft
Stores Mn sqft (RHS) Revenue 8,880
450 3.09 3.5 Gross margin 32%
400 3.0
Rent (5%) 444
2.71
Other store level opex (13%) 1,154
350 2.30 2.5 Store EBITDA 1,243
300 2.21
Store EBITDA margin 14.0%
1.79 2.0 Depreciation (12%) 168
250
(Nos.)

1.44 EBIT 1,075

200 1.20 1.5 Tax (25%) 269
1.01 PAT 806
150 0.88
0.71 1.0
100 0.370.460.55 Capex 1,400
50 0.5 Working capital 1,100
Capital employed 2,500
0 0.0 Store level RoCE (%) 32.3%
FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY17

FY21E
FY22E
FY23E
Company level RoCE(%) 17.6%
Payback period 2.6

We expect EBITDA margin to remain range- … and FCF generation to continue despite stores
bound… additions and working capital blockage

EBITDA margin Average OCF Capex FCF

1,400
12.0%
10.9% 1,200
11.0% 10.2% 1,000
10.0%
800
10.0% 9.0% 9.1%8.8% 9.3% 600
8.5%
(Rs mn)

9.0% 400
8.0% 8.0% 8.2%
7.7% 200
8.0%
-
7.0% (200)
6.3% (400)
6.0%
(600)
5.0% (800)
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20

FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY17
FY21E
FY22E
FY23E

FY21E
FY22E
FY23E
... with return ratios likely to remain steady Rolling P/E

RoE RoCE P/E Mean +1 Std. Dev -1 Std. Dev

30.0 140.0

25.0 120.0

20.0 100.0

80.0
(%)

15.0
60.0
10.0
40.0
5.0
20.0
- -
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E

FY23E
FY22E

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20
Sep-13

Source: I-Sec research

3
V-MART Retail, September 27, 2020 ICICI Securities

Initiate with BUY and target price of Rs2,500

V-MART (value fashion retailer) is well positioned to capture growth opportunities in
tier 2-4 cities with aggressive store openings and first-mover advantage. It has already
built a successful and highly profitable business model. However, near term focus
would be on preserving cash through cost reduction, rationalising capex and
optimising working capital. Rising competition, increasing share of new stores vs
matured stores, and investment in supply chain will keep margin range-bound and
return ratios steady. We like the company’s revenue growth potential, timely execution
and best-in-class return ratios. Initiate with BUY and DCF-based target price of
Rs2,500/share on Sep’22E.
Table 1: DCF based target price of Rs2,500/share on Sep’22E

10 Year EBITDA CAGR growth (%) 17.6

WACC (%) 11.0
Terminal growth rate (%) 6.0
PV of 10 yrs FCF (Rs mn) 8,555
PV of terminal value (Rs mn) 36,353
DCF value (Rs mn) 44,908
Net cash –Sep’22 (Rsmn) 458
Equity value (Rsmn) 45,366
No. of shares 18
Target price 2,500
Source: I-Sec research
Table 2: Comparative valuations with peers
CAGR (FY20-22E) (%) RoE (%) RoCE (%) EV/EBITDA (x) EV/sales (x)
Company Revenue EBITDA PAT FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E
ABFRL 5.5 20.6 92.1 4.4 (12.0) 10.6 6.8 1.0 8.5 25.7 49.9 17.0 1.5 2.2 1.3
ARVINDFA 3.2 NA NA (38.4) (35.1) (4.9) (13.2) (11.2) 0.2 NA NA 9.4 0.6 0.8 0.5
TCNSBR 5.2 26.8 34.1 9.2 6.5 13.6 9.1 6.5 13.5 23.1 28.0 13.4 1.9 2.5 1.6
TRENT 17.4 25.0 39.1 14.5 9.2 19.1 12.4 8.4 16.7 46.9 68.0 33.0 5.2 6.5 3.9
KEKC (0.3) (2.2) (1.3) 16.7 8.5 14.7 14.5 8.1 13.2 7.9 15.8 8.1 1.4 2.1 1.4
V-MART 7.5 7.8 2.7 18.4 6.2 16.0 18.4 6.0 15.7 27.6 49.8 23.7 2.2 3.2 1.9

P / E (x) P/B (x) P/CEPS (x) EV/EBIT (x)

Company FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E
ABFRL 162.6 NA 49.2 7.4 5.9 4.7 31.5 174.6 22.4 49.5 NA 26.6
ARVINDFA NA NA NA 1.1 1.2 1.3 NA NA 12.1 NA NA 25.5
TCNSBR 41.0 52.6 22.8 3.4 3.2 2.8 27.2 31.4 17.0 25.4 33.0 13.9
TRENT 92.5 115.8 51.6 11.3 10.5 8.9 68.6 77.5 41.2 53.5 75.7 35.6
KECK 12.7 24.0 13.1 2.1 2.0 1.9 11.5 20.1 11.5 7.2 12.6 7.3
V-MART 46.1 126.5 43.7 8.0 7.6 6.5 32.5 54.4 29.4 35.3 90.5 31.7
Chart 1: Rolling P/E Chart 2: Rolling EV/EBITDA
EV/EBITDA Mean
P/E Mean +1 Std. Dev -1 Std. Dev
+1 Std. Dev -1 Std. Dev
140.0 60.0
55.0
120.0 50.0
45.0
100.0
40.0
80.0 35.0
30.0
60.0 25.0
20.0
40.0
15.0
20.0 10.0
5.0
- -
Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-14

Mar-15

Mar-16

Mar-17

Mar-19

Mar-20
Mar-18
Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20
Sep-13

Sep-13

Source: I-Sec research Source: I-Sec research

4
V-MART Retail, September 27, 2020 ICICI Securities

Large opportunities in value fashion segment

Tier 2-4 markets provide huge opportunity based on demand and under-serviced
appetite for quality products. Growing incomes, increasing awareness and high
aspirations have been encouraging several retailers to make a beeline to these
markets.
Against the backdrop of Covid-19 pandemic, value fashion retail gaining further
momentum given slower economic growth (job losses, salary cuts, etc.) and muted
consumer sentiment / confidence. Consumer deferring purchase of relatively high-
priced products / categories (resulting in overall downtrading) till overall sentiment
improves. As V-MART operates on the key guiding principle of “price ‘less’ fashion”
and being the most preferred one-stop family fashion destination, it will be a key
beneficiary in bridging this gap to match consumer aspirations.
V-MART operates predominantly in smaller towns (78% of its stores are in non tier-1
cities), with relatively smaller store size (average at >8k sqft) looks to deepen its
presence. Example: its stores in Uttar Pradesh and Bihar itself have almost doubled in
last four years. It currently has 266 stores in 191 cities across 19 states with each of
the states and larger cities having potential for multiple stores in the medium to long
term. There are more than 5,000 towns and cities with a population of >0.2mn where
V-MART can have a presence, as per management.
Chart 3: V-MART’s footprint focused on North and East markets

Source: Company data, I-Sec research

5
V-MART Retail, September 27, 2020 ICICI Securities
Chart 4: 78% of total store presence in non tier-1 Chart 5: V-MART operates through relatively
cities smaller store sizes
100.0 Store size 90.0
Tier I Tier II Tier III Tier IV
90.0
100% 0% 0% 0% 0% 0% 0% 2% 80.0
11% 14% 12%
90% 70.0
80% 60.0

(000' sqft)
53% 52% 53% 51% 56% 50.0
70% 53% 56% 50.0
60% 52% 46% 53%
40.0
50% 27.5
30.0
18.0
40% 20.0 13.0 13.0
8.3
30% 29% 29% 29% 33% 32%
29% 28% 6.3
24% 23% 13% 10.0
20% -
10% 18% 18% 19% 15% 17% 15% 13% 13% 16% 22%

Zudio

Max

Westside
Pantaloons

Central
Shoppers
V-MART

Factory
Brand

Stop
0%
FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20
FY16

Source: Company data, I-Sec research Source: Industry data, I-Sec research

Chart 6: V-MART’s customer-centric approach

COCO Customer
stores insights

Differentiated Cluster-
customer based
experience Customer approach
Centric

Value
retailing Asset-light
model

Efficient
sourcing

Source: Company data, I-Sec research

6
V-MART Retail, September 27, 2020 ICICI Securities

Aggressive store additions to continue from FY22E

With a halt in FY21E
Management remains confident on potential of the value retailing format and thus
remains buoyant in terms of store openings. V-MART has upped its overall store
expansion pace with net store additions run rate doubled to 40-50 stores p.a. in last
two years’ vs 20 stores p.a. over FY14-FY18.

Management usually targets 18-20% area addition p.a through cluster-based

expansion strategy. Even in FY20, V-MART net-added 52 stores with retail space
increased by 23% to 2.2mn sqft as of Mar’20. Given the COVID-19 pandemic,
management remains conservative on new store openings for FY21E and aligning
rental agreements for the next six months for new stores that are yet to be rolled out.
Accordingly store expansion should gain momentum from FY22E onwards, in our
view. We model 39 stores additions p.a. with area additions at 12% CAGR over FY20-
FY23E.

V-MART has had only 23 store closures in last decade which shows the
management’s skill in finding locations with long-term potential and better store
economics. Generally, the company closes stores that underperform management’s
desired profitability.

Chart 7: Store additions to continue with a halt in Chart 8: …with average area per store to be at
FY21E… 8,000-8,500 sqft
Avearge size of store
Stores Mn sqft (RHS)
450 3.09 3.5 8,700
400 8,475
2.71 3.0 8,500 8,421
350 2.30 8,364
8,308
2.5 8,292
2.21 8,300 8,244 8,273
300 8,176
1.79 8,120 8,146
2.0 8,061
(Sqft)

250
(Nos.)

1.44 8,100 7,986 8,003

200 1.20 1.5
1.01 7,900
150 0.88
0.71 1.0
100 0.370.460.55 7,700
50 0.5
7,500
0 0.0
FY11
FY12
FY13

FY15
FY16
FY17
FY18
FY19
FY20
FY14

FY22E
FY23E
FY21E
FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY17

FY21E
FY22E
FY23E

Source: Company data, I-Sec research Source: I-Sec research

7
V-MART Retail, September 27, 2020 ICICI Securities
Chart 9: Better store economics and right Chart 10: V-MART’s hi-street standalone stores
locations resulted in low store closures
Store closures
4

3 3 3
3

2 2
(Nos.)

1 1 1 1
1

-
-
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20
Source: Company data, I-Sec research Source: I-Sec research

Cluster strategy – deeper rather than wider penetration

V-MART ensures all new stores are strategically located within 50-150km radius of
cities where it already has stores. However, there will not be cannibalisation even post
expansion of the store network. The locations are identified and vetted by an in-house
new store operations team, based on a multi-dimensional business assessment
matrix. Company conducts extensive research in the selection of store locations,
influenced by the presence of competing organised retail brands, customer
aspirations, rental affordability and the income generating potential of the region. Their
stores are generally located on a standalone basis in high-street areas and shopping
hubs.

V-MART’s cluster approach of ‘creeping expansion’ is aimed at generating visibility,

supply chain efficiencies, rapid scalability leading to buying / procurement flexibility
and cost savings.

Earlier, the management mentioned it will consolidate its leadership position in Uttar
Pradesh and Bihar and incrementally focus on East India. Currently, its stores are
largely concentrated in the states of Uttar Pradesh (103 stores, 39%) and Bihar (46
stores, 17%).

Besides, V-MART instituted zonal business structures for driving higher ownership and
regimental section. It has divided its operations into four zones: Uttar Pradesh, Bihar,
North region and East region to understand diverse aspirations and fashion trends.
Each zone is led by individual heads who are responsible for sales, marketing,
procurement & designs, and overall profitability of the zones.

Store economics suggests payback period of 2.5 years

Management follows a cautious approach to open a new store. Examples: i) it opens
stores largely in tier 2-3 cities; ii) stores should breakeven by the end of the first
quarter and should be PAT-positive in first year itself; and iii) store capex should be
funded through internal accruals.

8
V-MART Retail, September 27, 2020 ICICI Securities
Capex at Rs1,400/sqft alongwith working capital requirement leads to total capital
employed for store at ~Rs2,500/sqft. V-MART strategically targeted a store-level
EBITDA of 14-15% with a corporate level loading of 5%, to aim for a net EBITDA of 9-
10% and PAT of 4-5%.

Table 3: Store economics suggests payback Chart 11: V-MART has lowest capex per sqft
period of 2.5 years owing to presence in tier 2-4 cities
Particulars Rs/sqft 4,000 Capex
Revenue 8,880 3,500
Gross margin 32% 3,500
Rent (5%) 444
Other store level opex (13%) 1,154 3,000
2,500 2,500
Store EBITDA 1,243 2,500

(Rs / sqft)
Store EBITDA margin 14.0% 2,000
Depreciation (12%) 168 2,000
EBIT 1,075 1,400
Tax (25%) 269 1,500
PAT 806 1,000
Capex 1,400 500
Working capital 1,100
Capital employed 2,500 -

Zudio

Westside
Factory

Central
V-MART

Brand
Store level RoCE (%) 32.3%
Company level RoCE(%) 17.6%
Payback period 2.6
Source: I-Sec research Source: I-Sec research

Differentiated product offerings through private labels

Most value fashion retailers focus on price points. However, rising competition has
warranted higher focus on private labels with differentiated product offerings, loyal
customer base, and superior control over supply chain.

V-MART has developed several private labels such as Flick, Twist, Kidistan, etc.,
revenue share of which increased from 20% in FY17 to ~70% by FY20. However, the
management does not want to increase its share beyond 70-75%. Management has
indicated that it will continue to pass on margin gains from higher private label
contribution, making its products more compelling to value-seeking customers.

Chart 12: Private labels – positioning and price points

Private Label Target segment Price Tags
Men's casual wear & jeans Rs299-999

Women's casual and westernwear+ Boyswear Rs89-999

Young western wear Rs299 onwards

Girls wear Rs99 onwards

Infants wear Rs99 onwards

Women's ethnic wear Rs199-999

Men's formal wear Rs249-899

Source: Company data, I-Sec research

9
V-MART Retail, September 27, 2020 ICICI Securities
Chart 13: Increased share of private labels Chart 14: Player-wise private label mix in apparels
through differentiated offerings
80% Share of private labels Private label mix
100% 99%
70% 95%
100%
70% 65%
90%
80% 70%
60% 63%
70%
49% 60%
50%
50% 40% 40%
40%
40%
30%
20% 12%
30%
10%
20% 0%
20%

Shoppers Stop
Brand Factory
Zudio

Westside

Max Fashions

Central
Pantaloons
V-MART
10%

0%
FY17 FY18 FY19 FY20
Source: Company data, I-Sec research Source: I-Sec research

Apparel’s share of V-MART’s revenues has steadily increased to 80% in FY20 from
64% in FY12. In non-apparels space, general merchandise such as footwear, bags,
fashion jewellery, and homeware account for 13% of revenues while kirana accounts
for the remaining 7% as in FY20. V-MART has not opened any composite store since
FY12. Management mentioned the revenue share of apparels is likely to remain at
nearly 80%, while they are expanding categories in non-apparels.

Chart 15: V-MART’s product offerings are mainly in fashion

V-MART

Fashion Kirana Bazar

Apparels General Merchandise • FMCG products

• Men’s • Footwear • Packaged
• Women’s • Home furnishing • food items
• Boy’s • Kitchenware • Beauty and
• Girl’s • Toys and games • personal care
• Toddler’s • Bags and luggage • Home care
• Accessories • Crockery • Staple products

Source: I-Sec research

10
V-MART Retail, September 27, 2020 ICICI Securities
Chart 16: Revenue share of apparels has broadly Chart 17: Apparels mix in revenues of peers
remained at 80% in past few years

Apparels Non apparels Kirana 100% 91% 88%

90% 80% 79%
100% 72%
12% 9% 8% 7% 6% 7% 7% 80%
90% 24% 19% 14% 14% 13% 70% 62%
80% 11% 11% 14% 14%
60%
12%
70% 12% 50%
60% 40%
50% 30%
40% 20%
77% 80% 78% 79% 80% 80% 80%
30% 64% 69% 10%
0%
20%

Shoppers Stop
Brand Factory

Westside

Central
Pantaloons

V-MART
10%
0%
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20
Source: Company data, I-Sec research Source: I-Sec research

Considering the tepid external environment, ASP for its fashion apparel business has
broadly remained flat at an average of Rs328 over FY16-FY20. With improving
product mix and increasing share of private labels, average ticket size has consistently
increased at 5% CAGR over FY15-FY20 to Rs788 in FY20.

Owing to Covid-19, customers are buying more comfort wear which are at relatively
lower price points than normal occasion wear. Accordingly, ASP has declined 8%
YoY; however, the average ticket size has gone up by 14% YoY in Q1FY21 indicating
customers are coming out determined to shop.

Chart 18: ASP of apparels has broadly remained Chart 19: …with consistently increasing transaction
flat over last five years… size
900
Apparels Non apparels Kirana 788
800 750 756
713
100% 663
12% 9% 8% 7% 6% 7% 7% 700 625
90% 24% 19% 11% 14% 14% 14% 14% 13% 576
80% 11% 600
12% 462 489
70% 12% 500
(Rs)

60%
400
50%
300
40% 77% 80% 78% 79% 80% 80% 80%
30% 64% 69% 200
20% 100
10%
0
0%
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

Customer footfalls have more than doubled in last five years with conversion rate at
57-60%. Company launched V-MART Value Club in FY16 to augment consumer
loyalty. It has >12mn loyalty members and ~58% of sales are coming from repeat
consumers.

11
V-MART Retail, September 27, 2020 ICICI Securities
Chart 20: Customer footfalls have more than Chart 21: …with conversion rate at 58% in FY20
doubled in last five years…
70%
Customer footfalls % YoY (RHS) 68%
45.0 35.0% 68%
39.3 66%
66% 65%
40.0 30.0% 64%
35.0
35.0 64%
30.4
25.0%
30.0 62%
24.8 60%
25.0 20.0% 60%
20.0 59%
(mn)

17.8 58%
20.0 15.2 15.0% 58% 57%
15.0 11.5 56%
10.0%
10.0 54%
5.0 5.0%
52%
- 0.0%
50%
FY13

FY15

FY16

FY18

FY19
FY14

FY17

FY20

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20
Source: Company data, I-Sec research Source: Company data, I-Sec research

New warehouse – investing for future growth

V-MART had four warehouses till 2014. In 2015, it leveraged a hub-and-spoke delivery
model to reduce the number of warehouses to one (in Bilaspur, Haryana) with capacity
to support ~275-280 stores. This move helped moderate inward (from vendors) and
outward (from stores) product movement cycles, while strengthening inventory control
and profitability. To revive its backend, setting up of a new warehouse is imperative.
As a portion of new stores are to be opened in East India, a new warehouse is likely to
open in same vicinity and should be able to service additional 250-300 stores.
Company has not yet made any capex on the proposed new warehouse and we
factor-in capex of ~Rs400mn for the same in FY22E.

Vendor rationalisation garnering economies of scale

V-MART strategically worked on reducing its overall vendor base, which has reduced
from ~1,500 vendors in FY14 to ~500 vendors who are associated with the company
for more than a decade. With limited vendors, the company has better control over
inventory, maintains uniform quality, and reduces sourcing rates hence selling prices.
At present, ~30% of vendors contribute nearly 70% of the business. Large part of the
vendor base is based out of Ludhiana, Kolkata, Tirupur and Delhi.
Omni-channel play
Earlier, e-commerce / online platform was predominantly used as a key liquidation
channel for most brands. However, post Covid-19, there will be greater adaptability
and acceptability of these channels. Besides, it is likely to gain traction for even new
season / fresh collections as consumers may still want to avoid crowds.

V-MART has worked towards launching its own online platform (www.vmartretail.com)
and intends to use it as an additional channel. It also helps increase customer
engagement and give them the option of convenience. Company is likely to leverage
its existing logistics infrastructure and sourcing capabilities to offer omni channel
services. Currently, online revenues are <1% and management targeting to increase it
to 2-3% of revenues in near term.

12
V-MART Retail, September 27, 2020 ICICI Securities
Chart 22: Snapshot of vmartretail.com

Source: Company data, I-Sec research

13
V-MART Retail, September 27, 2020 ICICI Securities

Margins to remain range-bound

V-MART generally operates at a gross margin of ~32% with an apparel mix average at
80%. Despite lower gross margin compared to peers, V-MART’s EBITDA margin
averaged at 8-9% (industry-leading) owing to low rentals and A&P spends, higher
efficiency through cluster-based expansion strategy, better negotiation of terms with
vendors and higher operating leverage with its SSSG average at ~6% in last five
years.

Chart 23: Apparel SSSG trend in volume terms Chart 24: Apparel SSSG trend in value terms

Apparel volume SSSG Apparel value SSSG

15.0% 16.0%
12.9% 14.0%
13.3%
10.0% 10.7% 12.0% 11.5%
8.3% 10.0%
4.9% 8.9%
5.0% 5.4% 8.0%
1.0% 6.0% 6.5%
0.0% 4.0% 3.7%
2.0%
-5.0% 0.0% 0.4%

-6.1% -2.0%
-10.0% -4.0% -2.3%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: Company data, I-Sec research Source: Company data, I-Sec research

Competitive intensity to remain

Management acknowledged rising competitive intensity from pan-India chains (like
Zudio, Pantaloons, Reliance Trends, etc.) and e-commerce players like Amazon,
Flipkart etc. in tier 2-3 cities. Besides, there are multiple regional competitors (like V-
Bazzar, 1-India Family Mart, City Kart, Style Bazaar, City Life, Bazaar Kolkata, etc.)
that have cropped up through PE funding to replicate V-MART’s business model.

Economic slowdown, liquidity crunch and difficulty in funding from PE players post
Covid-19 may impact the weak regional players in the near term. V-MART’s net cash
status should allow it to gain market share and it continues to be a relevant and
sizeable player in value fashion retailing space. The company has focused on market
share gains by passing the cost benefits over margin expansion for having level-
playing field with other pan-India established retailers. Besides, company passed an
enabling resolution to raise fund upto Rs5bn to explore various growth opportunities.

Low fixed-cost structure provides an edge over peers

V-MART’s rentals remain the lowest in the industry at ~5% compared to peers (300-
400bps lower), given its large presence in small cities, where rentals are relatively
modest. Advertising & sales promotion costs have been in the range of 2.2-2.4% for
the past 10 years.

14
V-MART Retail, September 27, 2020 ICICI Securities
Our analysis suggests that employee expenses, rentals and other fixed expenses
account for just ~16% of sales (see table 4 for detailed breakup of FY19 costs) vs
nearly 30% of sales for national players.

Near term focus is on preserving cash through cost reduction

Near term focus is on preserving cash through cost reduction via rental waivers and
strict control over discretionary spends. Management negotiated rental waivers with all
its landlords and expect savings of Rs180mn for FY21E (witnessed Rs25mn in
Q1FY21). Major cost savings also witnessed in marketing spends (declined 98%
YoY), power cost (down 58% YoY) and employees cost (declined 49% YoY) in
Q1FY21. Besides, V-MART has stopped fresh purchases in the past five months and
cautiously started now to place orders for festive and winter season.

Chart 25: Player-wise rentals as % of revenues Chart 26: Player-wise adspend as % of revenues
16.0% 6.0% 5.4%
13.4% 13.7%
14.0%
5.0%
12.0%
9.6% 9.6% 3.8%
4.0%
10.0% 8.7% 3.3%
7.4% 2.6%
8.0% 3.0% 2.4%
6.0% 4.7%
2.0%
4.0%
1.0%
2.0%
0.0% 0.0%
ARVINDFA

ARVINDFA
FLFL

FLFL
TRENT
SHOP

TCNSBR

TCNSBR
V-MART

V-MART
ABFRL

ABFRL
Source: Company data, I-Sec research Source: Company data, I-Sec research

Table 4: FY19 breakup of overall cost structure

% of sales V-MART TRENT ABFRL TCNSBR ARVINDFA
Raw materials 67.7 48.7 48.4 34.0 49.3
Employees 8.8 10.0 11.2 12.5 8.8
Rent 4.7 13.4 13.7 9.6 7.4
Other variable expenses 4.3 8.1 5.4 16.5 19.7
Electricity/ Power and fuel 2.9 2.2 1.6 0.7 0.9
Processing/ labour charges 0.6 0.5 0.7 12.2 4.1
Commission/ Discounts 0.2 - 0.7 - 8.2
Transport and handling 0.1 2.9 1.0 0.6 1.3
Royalty - - 0.4 - 3.7
Printing/ Bank/ Communication charges 0.4 0.9 0.7 0.1 1.1
Others 0.1 1.5 0.2 2.9 0.4
Discretionary expenses 3.2 3.9 7.7 4.3 5.3
Advertisements and sales promotion 2.4 1.7 5.4 3.3 3.8
Travelling and conveyance 0.3 0.6 1.1 0.3 0.8
Repairs and maintenance 0.5 1.6 1.1 0.8 0.7
Other fixed expenses 2.1 6.6 6.9 7.7 3.4
Repairs and maintenance 0.5 1.6 1.1 0.8 0.7
Rates and taxes/ Insurance/ legal charges 0.5 1.7 1.4 0.5 0.6
Bad debts/ loss on PPE 0.1 0.4 0.1 0.3 0.4
Donations/ CSR 0.0 0.1 0.0 0.1 -
IT/ Auditors/ Security charges 1.0 1.3 4.0 3.2 1.2
Others 0.1 1.5 0.2 2.9 0.4
Total 90.7 90.7 93.2 84.6 93.8
Source: I-Sec research

15
 V-MART Retail, September 27, 2020 ICICI Securities
Increasing share of new stores vs matured stores and investment in supply chain
(warehouse, omni channel, etc.), and competitive intensity are likely to keep margins
range-bound. However, this steep cost arbitrage also acts as safety vs online players
as well.

We model 11-14% revenue / EBITDA / EPS CAGR over FY20-FY23E after factoring-
in 45% YoY drop in EBITDA in FY21E.

Chart 27: We factor revenues to increase at 12% Chart 28: Fast pace of store additions likely to limit
CAGR over FY20-FY23E sales per sqft

Revenues % YoY (RHS) Revenues % YoY (RHS)

25,000 80% 10,000 60%
22,500 9,000 50%
20,000
60% 8,000 40%
7,000 30%
17,500 40% 20%
15,000 6,000

(Rs/sqft)
(Rs mn)

10%
12,500 20% 5,000
0%
10,000 4,000
-10%
7,500 0% 3,000 -20%
5,000 2,000 -30%
-20% 1,000
2,500 -40%
- -50%
- -40%

FY11
FY12
FY13
FY14
FY15
FY16
FY17

FY19
FY20
FY18

FY21E
FY22E
FY23E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20

FY23E
FY21E
FY22E

Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 29: Sales per sqft of peers Chart 30: Gross margin averaged at ~31% in past
five years
12,000
10,393 10,279 Gross margin Average
10,000 8,888 33.0%
8,587 8,315 8,109
8,000 7,520 32.0%
(Rs / sqft)

31.0%
6,000 30.0%

4,000 29.0%
28.0%
2,000 27.0%

- 26.0%
Max
Westside

Pantaloons

Central
Factory

V-MART
Shoppers

25.0%
Brand

Stop

FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E

Source: Company data, I-Sec research Source: Company data, I-Sec research

16
 V-MART Retail, September 27, 2020 ICICI Securities
Chart 31: We factor-in EBITDA also to grow at 14% Chart 32: …with EBITDA margin to remain
CAGR over FY20-FY23E… range-bound

EBITDA % YoY (RHS) EBITDA margin Average

2,500 120% 12.0%
10.9%
100% 11.0% 10.2%
2,000 10.0%
80% 10.0%
9.0% 9.1% 9.3%
60% 8.8%
1,500 9.0% 8.5%
(Rs mn)

40% 8.0% 8.0% 8.2%

7.7%
20% 8.0%
1,000
0% 7.0%
500 -20%
6.0% 6.3%
-40%
- -60% 5.0%

FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY11
FY12

FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY13

FY21E
FY22E
FY23E
Source: Company data, I-Sec research Source: Company data, I-Sec research

17
V-MART Retail, September 27, 2020 ICICI Securities

Lean balance sheet; return ratios to remain steady

We model capex of Rs1.8bn over FY20-FY23E
V-MART’s progressive philosophy of derisking business through internal accruals has
strengthened its business sustainability. Its strong focus on growth and cashflow
management has resulted in net cash status since FY16. Operating losses in Q1FY21
and working capital blockage owing to Covid-19 pandemic led to net debt of Rs156mn
as of Jun’20-end and management guided to exit FY21E with net cash status.

Company has not raised any equity post IPO in 2013. In Sep’20, company passed an
enabling resolution to raise fund upto Rs5bn to explore various growth opportunities.

We have modelled 117 store additions over FY20-FY23E at a capex of Rs1.3bn,

translating to a capex per store of Rs11mn. In addition, the company is likely to spend
for store refurbishment, a new warehouse and IT / omni channels. Accordingly, we
modelled total capex of Rs1.8bn over FY20-FY23E, which is to be funded through
internal accruals.

Working capital to rise owing to Covid-19 pandemic

V-MART’s cash conversion cycle was at a healthy 41 days (on sales) in FY19 and has
consistently improved from 56 days in the last five years. Notably, inventory forms
~80% of V-MART’s total assets. Despite holding the complete inventory on its books, it
has managed to restrict it to ~80-85 days mainly owing to higher turns and maintaining
lower share of seasonal inventory in apparels. Company’s apparel inventory broadly
remains at ~90 days (on sales) while non-apparel inventory within 80 days. V-MART
consistently makes payment to its vendors in less than two months.

Inventory days has increased to 89 days in FY20 owing to Covid-19 impact from
Mar’20. We expect inventory days to rise to 132 days in FY21E owing to lower sales
due to the lockdown. However, it is likely to decline to 93 days by FY23E.
Accordingly, V-MART’s cash conversion cycle is likely to increase by 5-7 days over
the next 2-3 years on aggressive store additions.

In the last five years, shrinkages averaged at 1.4% of sales as it is a reflection of

largely a provision and not really pilferage. V-MART has undertaken conservative
provisioning and made cumulative provisions of Rs280mn over the last four quarters
against Rs110mn provision in Q1FY20. It has also made accelerated provision against
FMCG products. Accordingly, management has guided shrinkage to be 3.0-3.5% for
FY21E.

18
 V-MART Retail, September 27, 2020 ICICI Securities
Chart 33: Inventory days in FY21E looks high on Chart 34: Breakup of inventory between apparels
low base, but may still improve on absolute levels and non-apparels
140 132
Apparels Non-apparels
120 180
106 103
98 160
100 94 93
88 87 88 86 86 89 140
81
80 120
(Days)

100

(Days)
60
80
40 60
40
20
20
0 -
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20
Source: I-Sec research Source: Company data, I-Sec research
Chart 35: Payables days Chart 36: Cash conversion cycle to increase owing
to lockdown
60 100 92
49 90
50 47
80 73
39 40 40 66
37 38 70 60 62
40 35 36 36
33 34 32 56 53 57
60 51
49
(Days)

(Days)

30 50
40 37 41
40
20
30
20
10
10
- -
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20

FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E

FY21E
FY22E
FY23E
Source: Company data, I-Sec research Source: Company data, I-Sec research
Chart 37: Shrinkage is reflection of largely a Chart 38: Trent has lowest shrinkage cost industry-
provision and not only pilferage wide

Shrinkage Shrinkage
1.00%
1.9% 0.87%
2.0% 1.8% 0.90%
1.8% 1.6% 1.6% 1.6% 0.80%
1.6% 0.70%
1.4% 1.4%
1.3% 0.60% 0.51% 0.50%
1.4%
0.50%
1.2%
0.40% 0.28%
1.0% 0.30% 0.24%0.22%
0.8% 0.16% 0.18%0.17%
0.8% 0.9% 0.20% 0.12%
0.6% 0.10%
0.4% 0.00%
FY11

FY12

FY13

FY14

FY16

FY17

FY18

FY19

FY20
FY15
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: Company data, I-Sec research Source: Company data, I-Sec research

19
V-MART Retail, September 27, 2020 ICICI Securities
FCF generation of Rs620mn over FY20-FY23E
We model FCF generation of Rs620mn post factoring-in working capital blockage and
capex of Rs1bn and Rs1.8bn respectively over FY20-FY23E. Accordingly, net cash is
likely to increase from Rs118mn in FY20 to Rs656mn in FY23E.

Chart 39: FCF generation to continue despite Chart 40: …with net cash position to improve
stores additions and working capital blockage..
1,000
OCF Capex FCF
769
1,400 800 656
1,200 518
600
1,000 391
800 400 268 259
210

(Rs mn)
600 118
200 97
(Rs mn)

400
200 -
-
(200) (72) (54)
(200)
(400) (400)
(600) (372)(392)
(800) (600)

FY11
FY12
FY13
FY14
FY15

FY18
FY19
FY20
FY16
FY17

FY21E
FY22E
FY23E
FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY17

FY21E
FY22E
FY23E

Source: I-Sec research Source: I-Sec research

Return ratios to remain steady over FY21E-FY23E

V-MART return ratios remain healthy vs peers (~300-400bps higher than peers) owing
to strong growth and better profitability. The ratios are likely to get impacted in FY21E
(in line with industry) owing to lower growth and poor operating leverage. However,
they are most likely to remain industry-leading and steady at 16-17% over FY21E-
FY23E.

Chart 41: Return ratios to remain steady… Table 5: …and better than peers’
FY18 FY19 FY20 FY21E FY22E
RoE RoCE
RoCE
30.0
ABFRL 9.7 14.4 6.8 1.0 8.5
25.0 Arvind Fashion 6.4 6.8 (13.2) (11.2) 0.2
TCNS 26.8 24.6 9.1 6.5 13.5
20.0
TRENT 9.6 10.7 12.4 8.4 16.7
V-MART 23.8 18.9 18.4 6.0 15.7
(%)

15.0
RoE
10.0
ABFRL 14.6 25.5 4.4 (12.0) 10.6
5.0 Arvind Fashion 1.6 1.5 (38.4) (35.1) (4.9)
TCNS 27.5 25.0 9.2 6.5 13.6
-
TRENT 11.3 13.0 14.5 9.2 19.1
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E

FY23E
FY22E

V-MART 25.2 18.9 18.4 6.2 16.0

Source: I-Sec research Source: I-Sec research

20
V-MART Retail, September 27, 2020 ICICI Securities

Financials- pre-IndAS 116

Table 6: Profit & Loss account
(Rs mn)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Net Sales 2,148 2,819 3,835 5,750 7,202 8,093 10,017 12,224 14,337 16,630 11,531 19,224 23,579
% yoy 49% 31% 36% 50% 25% 12% 24% 22% 17% 16% -31% 67% 23%

Raw material cost 1,545 1,997 2,695 4,041 5,143 5,712 7,028 8,303 9,703 11,263 7,810 13,020 16,028
As a % of sales 72% 71% 70% 70% 71% 71% 70% 68% 68% 68% 68% 68% 68%

Gross margin 603 821 1,140 1,709 2,059 2,380 2,990 3,921 4,635 5,367 3,722 6,204 7,551
Gross margin (%) 28% 29% 30% 30% 29% 29% 30% 32% 32% 32% 32% 32% 32%

Employees cost 116 171 250 383 489 623 783 984 1,257 1,536 1,183 1,739 2,000
As a % of sales 5% 6% 7% 7% 7% 8% 8% 8% 9% 9% 10% 9% 8%
Rent 119 139 169 249 328 400 452 521 672 948 812 1,174 1,412
As a % of sales 5.5% 4.9% 4.4% 4.3% 4.6% 4.9% 4.5% 4.3% 4.7% 5.7% 7.0% 6.1% 6.0%
Power 56 72 106 164 199 228 267 337 422 482 340 567 696
As a % of sales 2.6% 2.5% 2.8% 2.9% 2.8% 2.8% 2.7% 2.8% 2.9% 2.9% 3.0% 3.0% 3.0%
Advertisement 42 51 81 136 148 191 226 262 339 349 185 404 495
As a % of sales 1.9% 1.8% 2.1% 2.4% 2.1% 2.4% 2.3% 2.1% 2.4% 2.1% 1.6% 2.1% 2.1%
Others exps. 77 106 142 254 258 319 415 489 615 727 470 783 1,007
As a % of sales 3.6% 3.8% 3.7% 4.4% 3.6% 3.9% 4.1% 4.0% 4.3% 4.4% 4.1% 4.1% 4.3%
Total Expenses 1,954 2,536 3,443 5,227 6,566 7,472 9,170 10,896 13,008 15,305 10,799 17,686 21,638
As a % of sales 91% 90% 90% 91% 91% 92% 92% 89% 91% 92% 94% 92% 92%

EBITDA 194 282 391 522 636 620 848 1,328 1,329 1,324 732 1,538 1,941
EBITDA margin (%) 9.0% 10.0% 10.2% 9.1% 8.8% 7.7% 8.5% 10.9% 9.3% 8.0% 6.3% 8.0% 8.2%

Depreciation 49 58 76 109 46 190 186 229 276 334 386 411 497
Other income 0 1 2 7 22 12 41 41 59 45 56 21 30

EBIT 145 225 317 421 612 442 703 1,140 1,112 1,035 402 1,148 1,474
EBIT margin (%) 7% 8% 8% 7% 9% 5% 7% 9% 8% 6% 3% 6% 6%

Interest 50 67 57 42 42 31 35 15 16 34 8 8 1

PBT 96 157 260 378 571 411 668 1,125 1,096 1,001 394 1,140 1,472
PBT margin (%) 4.5% 5.6% 6.8% 6.6% 7.9% 5.1% 6.7% 9.2% 7.6% 6.0% 3.4% 5.9% 6.2%

Exceptional items - - 6 - (17) 12 - - (98) - - - -

Tax expenses 33 53 86 127 180 147 229 348 382 202 102 296 383
Tax rate (%) 35% 34% 32% 33% 32% 35% 34% 31% 38% 20% 26% 26% 26%

Reported PAT 63 105 180 252 374 276 439 777 616 799 292 843 1,089
Adjusted PAT 63 105 174 252 391 264 439 777 714 799 292 843 1,089
Adjusted PAT margin (%) 2.9% 3.7% 4.5% 4.4% 5.4% 3.3% 4.4% 6.4% 5.0% 4.8% 2.5% 4.4% 4.6%
Source: Company data, I-Sec research

21
V-MART Retail, September 27, 2020 ICICI Securities
Table 7: Balance sheet
(Rs mn)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Assets
Cash & Cash equivalents 15 19 158 23 34 43 29 184 166 50 249 141 538
Short term investments - - 406 342 218 324 718 340 607 79 129 129 129
Inventories 711 869 1,108 1,677 1,832 2,044 2,692 3,071 3,290 4,779 4,156 5,138 5,979
Account Receivables 1 1 - - - - - - - - - - -
Other Current Assets 0 1 0 0 1 1 - - - - - - -
Loans & Advances (ST+LT) 96 93 130 161 210 251 204 329 443 473 461 577 707
Non Cash Current Assets 808 964 1,238 1,838 2,043 2,296 2,896 3,400 3,732 5,252 4,617 5,715 6,686

Accounts Payable 232 337 372 647 752 956 1,599 1,668 1,483 1,968 1,259 1,889 2,317
Other Current Liabilities 41 43 94 131 133 215 214 309 680 512 461 592 726
Current Liabilities 273 379 467 778 885 1,171 1,813 1,977 2,163 2,480 1,721 2,481 3,043
Non-Cash Working Capital 535 584 772 1,061 1,158 1,125 1,083 1,423 1,570 2,772 2,897 3,234 3,643

Long term investment - - - - - - - - - - - - -

Gross Block 409 550 765 1,096 1,421 1,733 1,349 1,849 2,296 2,724 2,950 3,839 4,585
Accumulated Depreciation 157 215 291 396 440 630 176 402 641 975 1,361 1,772 2,269
Net Fixed Assets 253 336 474 700 981 1,103 1,173 1,447 1,655 1,749 1,589 2,068 2,317
CWIP 14 8 13 10 7 23 12 35 40 25 25 25 25
Other Non-Current Assets 7 0 0 1 1 1 - - - - - - -
Deferred tax assets (net) 4 6 7 22 6 42 79 92 118 160 160 160 160
Total Non-Current Assets 276 350 495 732 995 1,170 1,263 1,575 1,813 1,934 1,774 2,253 2,502

Total Invested Capital 826 954 1,831 2,158 2,405 2,661 3,094 3,522 4,156 4,835 5,049 5,756 6,811

Liabilities
ST Interest Bearing Liabilities 357 390 334 436 290 270 351 3 3 10 110 10 10
LT Interest Bearing Liabilities 30 22 20 2 15 - 6 3 0 - - - -
Other LT liabilities - - - 19 50 84 37 42 60 236 58 58 71
Total Int. bearing liabilities 387 412 354 438 306 270 357 6 3 10 110 10 10

Total Liabilities 387 412 354 457 355 354 394 48 63 246 168 68 81

Share Capital 73 73 180 180 180 181 181 181 181 182 182 182 182
Retained earnings 366 469 1,297 1,522 1,869 2,127 2,520 3,293 3,911 4,408 4,699 5,506 6,549
Total Equity 439 542 1,477 1,702 2,049 2,307 2,700 3,474 4,093 4,589 4,881 5,688 6,730
Total Invested Capital 826 954 1,831 2,158 2,405 2,661 3,094 3,522 4,156 4,835 5,049 5,756 6,811
Source: Company data, I-Sec research

Table 8: Cash flow

(Rs mn)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Operating Cash flow 115 216 286 481 589 639 586 958 1,017 1,028 621 1,234 1,557
Working Capital changes (113) (103) (231) (410) (227) (207) 69 (397) (270) (1,091) (302) (337) (396)
Capital Commitments (94) (136) (222) (333) (335) (261) (416) (479) (407) (614) (226) (889) (746)
Net Operating FCF (92) (23) (166) (262) 27 171 239 83 340 (678) 93 7 414

Investing Activities (6) (2) (400) 62 145 (111) (312) 395 (327) 619 56 21 30

Issue of Share Capital 5 - 770 - 9 8 0 9 19 13 - - -

Buyback of shares - - - - - - - - - - - - -
Inc(Dec) in Borrowings 95 25 (57) 83 (150) (20) 87 (351) (3) 8 100 (100) -
Dividend paid - (3) (3) (21) (21) (53) (6) (27) (44) (37) - (36) (47)
Chg. in Cash & Bank 1 (4) 143 (137) 10 (6) 8 109 (14) (75) 249 (108) 397
Source: Company data, I-Sec research

22
V-MART Retail, September 27, 2020 ICICI Securities

Key risks
Lower discretionary spending
Slowdown in the macro-economy and consequent impact on discretionary spending
will adversely impact our revenue and margin growth estimates.

Higher competitive intensity

Aggressive expansion of pan-India players and emergence of local players in value
fashion segment will keep competitive intensity high.

Delay in store rollout plans

Any delay in setting up new stores will make it difficult for the company to meet our
revenue and earnings estimates.

Disruption in supply chain model

Any disruption in warehouse operations, transportation arrangements or vendor
partnership may adversely affect business, hence results of operations and financial
condition.

Threat from e-commerce players

As e-commerce players provide deep discounting, they impact profitability of the
apparel players. Continuation of deep discounting strategy on e-commerce platforms
may pose a risk to our estimates.

23
V-MART Retail, September 27, 2020 ICICI Securities

Company background
In the business of providing value fashion across tier 2-4 cities since 2002, V-MART
has pioneered the concept of ‘Organised Value Retail’, emerging as the frontrunner in
the segment. Its offerings include apparels, general merchandise, and kirana –
catering to the entire family. Operations are spread across largely in northern and
eastern parts of India. The product range specifically caters to the ‘aspiring’ and
‘middle’ classes with an added focus on demands of the youth and young families in
these cities.

The business was first incorporated as Varin Commercial Private Limited in West
Bengal. In 2003, it opened its maiden store in Ahmedabad, Gujarat. Currently, V-
MART operates 266 stores across 191 cities in 19 states and Union territories, with a
total retail area of 2.22mn sqft as at Jun’20.

Table 9: Key management profiles

Name Designation Experience
 Founder of V-Mart, he is a retail entrepreneur credited with pioneering the concept of organised value
retailing in India. He has over 20 years of experience in retail industry.
 He was nominated to the Niti Aayog’s ‘Champions of Change’ initiative, in 2017.
Lalit Agarwal CMD
 B.Com. from Mumbai University and Diploma holder in Financial Management from NMIMS, Mumbai.
 He is Chairman of Retailers Association of India (RAI) for the northern region. He was recognised as
the retail leader for the year 2018 by Franchise India.
 With more than four decades of entrepreneurial experience in the fashion retail industry, he is a
mentor and a guiding force for the company.
 He has been instrumental in imbibing customer-centricity and cost- consciousness in the DNA of V-
Madan Agarwal WTD MART.
 B.A. from City College, University of Kolkata, he started his career by opening a tailoring shop in the
1970s, and later opened a popular and highly successful apparel and footwear retail store –
Shreeman Shreemati in Cuttack.
 He has 15 years of multi‐faceted industry experience with some of the country’s leading retailers.
 Prior to joining V‐Mart, he had been associated with the Aditya Birla Group for eight years, with
Samir Misra COO leadership roles with Pantaloons Fashions and Madura Fashion & Lifestyle.
 He has performed leading business roles with diversified organisations like McDonald’s, Marico,
Future Group, etc.
 A CA and CS by qualification, he has more than 22 years of experience in strategic planning, finance,
Anand Agarwal CFO legal, treasury, fund raising, M&As, investor relations and board management.
 Prior to V‐Mart, he has held leadership roles in companies like HT Media, Reebok, E & Y, etc.
Source: I-Sec research

24
V-MART Retail, September 27, 2020 ICICI Securities

Financial summary
Table 10: Profit and Loss statement Table 13: Cashflow statement
(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Operating Income (Sales) 16,630 11,531 19,224 23,579 Operating Cashflow 1,028 621 1,234 1,557
Operating Expenses 15,305 10,799 17,686 21,638 Working Capital changes (1,091) (302) (337) (396)
EBITDA 1,324 732 1,538 1,941 Capital Commitments (614) (226) (889) (746)
% margin 8.0 6.3 8.0 8.2 Net Operating FCF (678) 93 7 414
Depreciation & Amortisation 334 386 411 497 Investing Activities 619 56 21 30
Gross Interest 34 8 8 1 Issue of Share Capital 13 - - -
Other Income 45 56 21 30 Buyback of shares - - - -
Recurring PBT 1,001 394 1,140 1,472 Inc(Dec) in Borrowings 8 100 (100) -
Add: Extraordinaries - - - - Dividend paid (37) - (36) (47)
Less: Taxes 202 102 296 383 Others - - - -
Net Income (Reported) 799 292 843 1,089 Extraordinary Items - - - -
Recurring Net Income 799 292 843 1,089 Chg. in Cash & Bank (75) 249 (108) 397
Source: Company data, I-Sec research Source: Company data, I-Sec research

Table 11: Balance sheet Table 14: Key ratios

(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Assets Per Share Data (Rs)
Total Current Assets 5,302 4,867 5,856 7,224 EPS(Basic) 44.0 16.1 46.4 60.0
Current Liab. & Prov. 2,716 1,778 2,539 3,114 Diluted Recurring EPS 44.0 16.1 46.4 60.0
Net Current Assets 2,587 3,088 3,317 4,110 Diluted Recurring CEPS 62.4 37.3 69.1 87.4
Investments of which 79 129 129 129 Dividend per share - - 2.0 2.6
Strategic/Group - - - - Book Value 253 269 313 371
Marketable 79 129 129 129
Net Fixed Assets* 1,774 1,614 2,092 2,342 Growth Ratios (% YoY)
of which Operating Income 16.0 (30.7) 66.7 22.7
Capital Work-in-Progress 25 25 25 25 EBITDA (0.4) (44.7) 110.1 26.2
Deferred tax assets 160 160 160 160 Recurring Net Income 11.9 (63.5) 189.3 29.2
Total Assets 4,600 4,991 5,698 6,741 Diluted Recurring EPS 11.8 (63.5) 189.3 29.2
of which cash & cash 129 378 270 667 Diluted Recurring CEPS 14.3 (40.2) 85.1 26.5
equivalents
Valuation Ratios (x)
Liabilities P/E 46.1 126.5 43.7 33.8
Borrowings 10 110 10 10 P/CEPS 32.5 54.4 29.4 23.2
Equity Share Capital 182 182 182 182 P/BV 8.0 7.6 6.5 5.5
Face value per share (Rs) 10 10 10 10 EV / EBITDA 27.6 49.8 23.7 18.6
Reserves & Surplus 4,408 4,699 5,506 6,549 EV / Operating Income 2.2 3.2 1.9 1.5
Net Worth 4,589 4,881 5,688 6,730 EV / Operating FCF 590.9 114.1 40.6 31.1
Total Liabilities 4,600 4,991 5,698 6,741
Source: Company data, I-Sec research Operating Ratios (%)
Raw Material / Sales 67.7 67.7 67.7 68.0
SG&A expenses / Sales 3.7 4.1 4.1 4.3
Table 12: Quarterly trend Other Income / PBT 4.5 14.2 1.8 2.0
(Rs mn, year ending March 31) Effective Tax Rate 20.2 26.0 26.0 26.0
Sep-19 Dec-19 Mar-20 Jun-20 NWC / Total Assets 0.6 0.6 0.6 0.5
Net sales 3,140 5,624 3,329 781 Inventory (days) 89 132 98 93
% growth (YoY) 19.7 20.7 (3.4) (82.8) Receivables (days) - - - -
Recurring EBITDA (83) 944 66 (296) Payable (days) 38 40 36 36
Margin (%) (2.6) 16.8 2.0 (38.0) D/E Ratio (x) (0.0) (0.1) (0.0) (0.1)
Other income 12 4 8 14
Extraordinaries Inc / (Loss) - - - - Profitability Ratios (%)
Recurring Net Income (110) 660 (5) (223) Rec. Net Income Margins 4.8 2.5 4.4 4.6
Source: Company data RoCE 18.4 6.0 15.7 17.4
RoNW 18.4 6.2 16.0 17.5
Dividend Payout - - 4.3 4.3
Source: Company data, I-Sec research

25
V-MART Retail, September 27, 2020 ICICI Securities

Annexure: Index of tables and charts

Tables
Table 1: DCF based target price of Rs2,500/share .............................................................. 4
Table 2: Comparative valuations with peers ......................................................................... 4
Table 3: Store economics suggests payback period of 2.5 years ........................................ 9
Table 4: FY19 breakup of overall cost structure ................................................................. 15
Table 5: …and better than peers’ ....................................................................................... 20
Table 6: Profit & Loss account ............................................................................................ 21
Table 7: Balance sheet ....................................................................................................... 22
Table 8: Cash flow .............................................................................................................. 22
Table 9: Key management profiles ..................................................................................... 24
Table 10: Profit and Loss statement ................................................................................... 25
Table 11: Balance sheet ..................................................................................................... 25
Table 12: Quarterly trend .................................................................................................... 25
Table 13: Cashflow statement ............................................................................................ 25
Table 14: Key ratios ............................................................................................................ 25

Charts
Chart 1: Rolling P/E .............................................................................................................. 4
Chart 2: Rolling EV/EBITDA ................................................................................................. 4
Chart 3: V-MART’s footprint focused on North and East markets ........................................ 5
Chart 4: 78% of total store presence in non tier-1 cities ....................................................... 6
Chart 5: V-MART operates through relatively smaller store sizes ........................................ 6
Chart 6: V-MART’s customer-centric approach .................................................................... 6
Chart 7: Store additions to continue with a halt in FY21E…................................................. 7
Chart 8: …with average area per store to be at 8,000-8,500 sqft ........................................ 7
Chart 9: Better store economics and right locations resulted in low store closures ............. 8
Chart 10: V-MART’s hi-street standalone stores .................................................................. 8
Chart 11: V-MART has lowest capex per sqft owing to presence in tier 2-4 cities ............... 9
Chart 12: Private labels – positioning and price points ......................................................... 9
Chart 13: Increased share of private labels through differentiated offerings ...................... 10
Chart 14: Player-wise private label mix in apparels ............................................................ 10
Chart 15: V-MART’s product offerings are mainly in fashion .............................................. 10
Chart 16: Revenue share of apparels has broadly remained at 80% in past few years .... 11
Chart 17: Apparels mix in revenues of peers...................................................................... 11
Chart 18: ASP of apparels has broadly remained flat over last five years… ...................... 11
Chart 19: …with consistently increasing transaction size ................................................... 11
Chart 20: Customer footfalls have more than doubled in last five years… ........................ 12
Chart 21: …with conversion rate at 58% in FY20 ............................................................... 12
Chart 22: Snapshot of vmartretail.com ............................................................................... 13
Chart 23: Apparel SSSG trend in volume terms ................................................................. 14
Chart 24: Apparel SSSG trend in value terms .................................................................... 14
Chart 25: Player-wise rentals as % of revenues ................................................................. 15
Chart 26: Player-wise adspend as % of revenues .............................................................. 15
Chart 27: We factor revenues to increase at 12% CAGR over FY20-FY23E .................... 16
Chart 28: Fast pace of store additions likely to limit sales per sqft ..................................... 16
Chart 29: Sales per sqft of peers ........................................................................................ 16
Chart 30: Gross margin averaged at ~31% in past five years ............................................ 16
Chart 31: We factor-in EBITDA also to grow at 14% CAGR over FY20-FY23E… ............. 17
Chart 32: …with EBITDA margin to remain range-bound ................................................. 17
Chart 33: Inventory days in FY21E looks high on low base, but may still improve on
absolute levels .............................................................................................................. 19
Chart 34: Breakup of inventory between apparels and non-apparels ................................ 19

26
V-MART Retail, September 27, 2020 ICICI Securities
Chart 35: Payables days ..................................................................................................... 19
Chart 36: Cash conversion cycle to increase owing to lockdown ....................................... 19
Chart 37: Shrinkage is reflection of largely a provision and not only pilferage ................... 19
Chart 38: Trent has lowest shrinkage cost industry-wide ................................................... 19
Chart 39: FCF generation to continue despite stores additions and working capital
blockage.. ...................................................................................................................... 20
Chart 40: …with net cash position to improve .................................................................... 20
Chart 41: Return ratios to remain steady… ........................................................................ 20

27
 V-MART Retail, September 27, 2020 ICICI Securities

This report may be distributed in Singapore by ICICI Securities, Inc. (Singapore branch). Any recipients of this report in Singapore should contact ICICI Securities,
Inc. (Singapore branch) in respect of any matters arising from, or in connection with, this report. The contact details of ICICI Securities, Inc. (Singapore branch) are
as follows: Address: 10 Collyer Quay, #40-92 Ocean Financial Tower, Singapore - 049315, Tel: +65 6232 2451 and email: navneet_babbar@icicisecuritiesinc.com,
Rishi_agrawal@icicisecuritiesinc.com.

"In case of eligible investors based in Japan, charges for brokerage services on execution of transactions do not in substance constitute charge for research reports
and no charges are levied for providing research reports to such investors."

New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

ANALYST CERTIFICATION
I/We, Dharmesh Shah, CA; Krupal Maniar, CA, CFA; authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly
related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated persons of the
ICICI Securities Inc. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report
in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of
financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI
Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries
engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in
respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our
associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research
Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or
derivatives of any companies that the analysts cover.
Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc
as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com
to view the Fundamental and Technical Research Reports.
Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.
ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Institutional
Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Retail
Research.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained
herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to
any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information
herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other
reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such
suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity
to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy
or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or
solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers
may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes
investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities
discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The
recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange
rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is
not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the
securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change
without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from
the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage
services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage
services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its
associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of
the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this
report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the
report as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various
companies including the subject company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any
registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category
of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical
information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

28