145% return in one year! GST has created new prospects for this small cap

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Many may not be exactly happy with the way GST has unfolded so far, but V-Mart is not complaining, for sure. Evidently, the numbers are on its side. At a time when small caps are bleeding profusely, V-Mart Retail has stood out, zooming 108 per cent since January this year to July 9. 

Quite a handful of industries are still making a pitch for quickly fixing GST loopholes. But for this company, the biggest reform since Independence has already been a game changer. How?

V-Mart’s CFO Anand Agarwal said the company generates 85 per cent of revenues from products priced below Rs 1,000, which comes under the 5 per cent GST slab. “We have always been a value for money retailer and with a low tax rate of 5 per cent, the customers at the middle and bottom of the pyramid have continued to see value in the products being sold by us,” the CFO added.

Agarwal acknowledged that GST has been “extremely good” for the industry, especially for the retailer.”We have seen a lot of benefits coming in from GST in terms of in of simplicity of implementation, logistics as well as getting customers to like and come to organised retail,” he told ET Now. “It has been a good journey and a game changer not only for us, but for the entire nation.”

Sales in last one year (FY 17-18) grew 22 per cent to Rs 1,222 crore against Rs 1,001 crore. Ebitda saw a jump of 57 per cent to Rs 132.8 core against the earlier Rs 84.8 crore. PAT increased 77 per cent to Rs 77.7 crore, from Rs 43.9 crore.The company’s March quarter profit more than doubled to Rs 15.91 crore, from Rs 6.44 crore a year earlier. It has been quite aggressive on expansion with addition of 33 stores and shut just one in FY 18. The retailer now has 171 stores in total. During the period, the fashion segment contributed 94 per cent of total revenue while kirana chipped in with 6 per cent.

The stock has spiked 148 per cent between July 10, 2017, and July 9, 2018.  On a full year basis, the company’s same store sales growth (SSG) stood at 9 per cent on the back of 13 per cent SSG in 2016-17, Agarwal let out. However, he added that the first half of the year should be a little soft because of the very high base of last year. “Beating that or even coming into the strong territory will be a bit challenging, but on a full-year basis, 8-9 per cent is something we would want to target internally,” he added.

Brokerage Edelweiss Securities believes that sustenance in demand in tier 2, 3 and 4 cities will drive its growth in the June quarter. It expects V-Mart to report SSG of nearly 2 per cent on a strong base of 23.1 per cent. The base was given a leg-up by demonetization after-effects where V-Mart had rolled out schemes to lure customers when cash was minimal, along with other measures. Nirmal Bang Securities expects V-Mart Retail to deliver 23.5 per cent top line growth for the quarter led by new store addition as well as SSG.

The company has plans to treble its revenues in the next five years. It has registered compounded sales growth of 26.09 per cent in the past five years. It sees a lot of potential in rural and semi-urban areas. Hence, tier-3 and -4 towns are the segment where V-Mart aims to scale up its presence. “In India, there are more than 4,000 towns where a store like V-Mart can be present. We are operational in only 141 towns and this gives us a lot of room to play,” Agarwal pointed out. 

Foreign brokerage Jefferies has ‘hold’ rating on the stock with a target price of Rs 2,580. It says the company is key beneficiary of rural recovery and recent MSP hikes. It has raised topline and Ebitda estimates by over 2 per cent and 4 per cent, respectively, on strong execution and better traction.

However, there has been a sharp drop in the company’s share price for the last three days. The stock hit a lifetime high of Rs 3,288 on July 9. But it has been on a slippery slope since July 10 and has lost 20.4 per cent till today after it was put under ASM (Additional Surveillance Measures) framework. 

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