We believe V-Mart’s relatively strong balance sheet (about Rs 55 mn in cash and Rs 1.5 bn of open bank funding lines) will hold it in good stead and may even help it gain market share.

V-Mart Retail (V-Mart) reported larger-than-expected decline of 3.4% y-o-y in revenue and 63% y-o-y in comparable Ebitda. Quarterly performance through 15 March was healthy (revenue/SSSG growth of 29%/8% y-o-y), but the lockdown dragged overall SSSG to 18% y-o-y (notional sales loss of about Rs 750 mn). Management expects revenue to pick up gradually (with 70% stores having re-opened and witnessing 40% footfall) and would not shy away from severe cost control (employee and rental costs).

We believe V-Mart’s relatively strong balance sheet (about Rs 55 mn in cash and Rs 1.5 bn of open bank funding lines) will hold it in good stead and may even help it gain market share. We reiterate V-Mart is a play on rural recovery and value retailing, and would potentially outshine other value retailers in the ongoing crisis. Maintain Buy with a TP of Rs 1,932.

Revenue momentum slammed: The revenue momentum of about 15% y-o-y over the last multiple quarters came to a halt owing to the lockdown. Q1FY21 would be muted too, and a return to the normal trajectory is likely in the latter half of H2FY21. Store expansion too has been hit, and we are now building in only 15 stores for FY21 against the 52 added in FY20. While the company should be able to hold onto gross margin, Ebitda will bear the pain (expect Ebitda margin compression of 60bps y-o-y in FY21). That said, cost-saving initiatives should keep V-Mart relatively better off.

Outlook: V-Mart’s mainstay—value retailing—should help it hold up in the face of cutback on large-ticket purchases by consumers. Retain ‘BUY/SP’ with a TP of Rs 1,932 (retain 45x PE to non-Ind AS 116 FY22e EPS). The stock is trading at 38x FY22e EPS (non-IND AS 116 EPS).