Centrum Broking

V-Mart (Buy)

Target: ₹2,852

CMP: ₹2365

V-Mart Retail has built its strong business model in the untapped markets with a focus to meet rural India’s fashion aspiration and the tag-line, “value-fashion at affordable price” is crafting a solid business moat. Capitalising on the shift from unorganised apparel retailing, V-Mart has consciously targeted tier 2/3/4 cities locating nearly 78 per cent of its stores using cluster-based strategy in high GDP growth states (UP/Bihar).

Notably, these cities also offered lower operational costs, and higher store throughput resulted in healthy revenue/EBITDA/PAT CAGR of 19 per cent/ 26 per cent/ 12 per cent over FY14-20 period. Factoring Covid-19 impact to be higher, we expect demand recovery in H2-FY21 to be led by strong rural income growth coupled with government’s initiative on job creation in these markets. In our view, India’s value fashion is largely untapped offering vast potential in capturing shift in modern trade in rural India.

Banking on this opportunity, V-Mart targets consumers in non-tier-1 towns providing merchandise at an affordable price (30-35 per cent lower vs. competition). It has managed to control its operational cost (best in the industry) and sources 65 per cent of merchandise from private labels with exclusive designs. This has helped V-Mart to remain ahead of national players and standalone traditional competition providing value proposition to aspirational consumers in the hinterland.