V-Mart Retail's daring acquisitions hurt but the tables are now turning

Copyright © HT Digital Streams Limit all rights reserved. Markets Ananya Roy 6 min Read 09 Apr 2025, 09:13 AM IST V-Mart is a value trader with a Pan-India presence, with nearly 500 stores. (Beeld: Pixabay) Summary In the aftermath of pandemic struggles, V-Mart Retail is on a recovery path, powered by strategic initiatives and a revival in rural demand. Although the risks of competition continue, the fortunes and attractive valuations have caught investors’ attention. Export-focused sectors are in the direct fire line, and the global economic slowdown will not save anyone. However, sectors that provide for domestic consumption will remain relatively isolated. Specifically, businesses that provide for mass demand have been left behind in post-pandemic K-shaped recovery, and are now available at attractive valuations. This is particularly relevant because their fate is turning with a recovery in rural demand. One of these reversal sectors is value retail, and the stock in focus is V-Mart Retail. After reporting another quarter of healthy numbers earlier this month in its quarterly business update for the recently secluded March quarter, the share appreciated 7% in April, even if the broad market index corrected with almost 6%. Problems have continued since the pandemic V-Mart is a value trader with a Pan-India presence. The company has nearly 500 stores over an expansive 4 million square feet, and is powered by value clothing. With persistent store expansion and an established record of upside in its core areas, V-Mart has all the ingredients for a successful retail business. But the pandemic hit it hard. Several stores remained closed during closure. Even after the closure was lifted and the pent -up question was released, rural demand remained slow in an environment of uncertainty and rising inflation. In the midst of this K-shaped recovery, companies that cater for mass demand like V-Mart have left behind. The problems were exacerbated by strengthening the competition of organized, disorganized as well as digital players in clothing retail. To make matters worse, V-Mart undertook acquisitions undertaken in FY22 and Limeroad in FY23, which weighed on his books. But the tables turn. Also read: V-Mart retail leaves FY25 in style, but the competition threat continued the unlimited turnaround V-Mart in 2021, with the purpose of the footsteps of ARDind fashion in 2021. While the agreement was attractive and made V-Mart a pan-India clothing dealer, it had part of the challenges. Compared to V-Mart, which only had about 23% of its stores in Tier-1, Unlimited had 45% of its presence instead of the top level. Unlimited stores have since been renamed and brought into the V-Mart way to do business. Several unlimited stores were closed and replaced with higher throughput stores in Tier-3 and Tier-4 cities. The average selling price (APP), which was on more than £ 500 at the time of the acquisition, has since been reduced to £ 430. It is still double the ASP of V-Mart, but the ASPs are more comparable in clothing with V-Mart at £ 340 and unlimited at £ 460. So, at Unlimited, the net addition is limited, stagnant of the shopping space at 0.8 million square meters, and revenue has grown slowly. But this conservative approach to profitable ramp performed well. Unlimited posted 10% SSSG growth in Q4 FY25 -higher than V -Mart’s 7%. Sales per square feet at Unlimited grew by 12% year -on -year and kept pace with the total growth of 13%. Unlimited is expected to continue to drive the growth at V-Mart here. SSG stands for the same growth in sales stores. Limeroad losses are shrinking V-Mart, Limeroad has acquired in FY23 to promote its digital dreams. But the ebitda losses of Limeroad were a constant attire on the business. To reverse this, management has halved advertising costs from 38% to 19% of net trading value (NMV) in the year ended December 2024. Meanwhile, NMV was supported at a quarterly value of approximately £ 29 by raising Via Limeroad Via Limeroad sales. V-Mart’s contribution to Limeroad’s orders tripled to 33% during the period. It did well. Limeroad Ebitda loss halved in the first quarter of £ 6.5 in the first quarter of £ 14.1 in the previous period. Debt has exploded, but stabilizing V-Mart has undertaken a heavy captex for acquisitions and expansion of the store, which amounts to £ 900 crore over three years. It was partly funded by debt, which led to an explosion of term debt on V-Mart’s books of £ 11 crore in FY19 to over £ 1,200 crore in FY24. Notwithstanding the wind of the industry, the operating profit of V-Mart has grown. But rising interest costs and depreciation in the light of Heavy Capex have led to a low and even negative bottom for the business. However, the company has shifted the focus to profitable growth. This closed underperforming stores and improved the throughput of existing stores. Management offers discounts and fresh stock, while also undertaking category expansion to achieve a larger wallet share. This, together with the turnaround in unlimited and shrinking losses at Limeroad, is expected to drive growth without contributing the debt burden and thus gradually improving the debt statistics of the business. Appointment capital problems, apart from term debt, thanks to the inventory of the stack, V-Mart also accumulated working capital loans on his books. Some working capital pain is expected of the inherently high stock in clothing retail. But with the rise of fast fashion, the industry is refreshing and supplementing faster stock. V-Mart is no exception and has reduced its stock from 129 days of sales in FY23 to 92 days from December 2024. It is also expected to alleviate its stress in working capital. Forture is turning inflation, weakening, mainly powered by food inflation that forms a significant part of the rural consumption basket. Rural revenue has taken up after healthy moson and agricultural production. Government SOPs in the midst of election also helped. This led to a recovery in rural demand, and consequently in the plight of V-Mart. From December 2024, the number of shops and shopping space grew by 7% year-on-year, and management led for 60-65 new stores in FY26. Footfall improved by 42% to 56 million in the nine months ended December 2024 (9mfy25). Despite moderation in the conversion rate, the growth of selling the same stores (SSSG) was 10%, and sales per square meter. by 13% expanded down the front with 19% growth in tiger-4 cities. In 9mfy25, Unlimited saw its ebitda margin double to 14.4%, while the loss of limeroad is still shrinking. The persistent focus on profitability has led to overall Ebitda margin expanding from 11.1% to 13.5%. The momentum continued in the fourth quarter, with an annual 17% growth of year -on -year to £ 3.254 crore. It was led by V-Mart and Unlimited, which grows 18% during the period on the back of 11% SSSG and 12% store expansion. Valuation offers comfort, even if the risks of competition continue, the fortunes and attractive valuations have attracted investors’ attention. After rectifying more than 33% of its peak in October 2024, the share trades 21 times its FY27 EBITDA. It bakes in a fairly modest 15% revenue between FY25 and FY27 at 6.4% Ebitda margin. The share reflects this optimism and has recovered by 7% this month. Brokers have fixed its target price at around £ 3.500 per share, reflecting 12% of current levels. Read profits for more such analyzes. Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa disclosure: The author has no shares of the businesses discussed. The opinions expressed are only for information purposes and should not be considered investment advice. Readers are encouraged to do their own research and consult a financial professional before making investment decisions. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #profit Pulse #Markets Premium Mint Specials