V-Mart Retail IPO Review by KM Global (Apply)

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Review By K.M. Global Financial Services Ltd on February 1, 2013

Issue Period: February 1st-5th
Issue Price (Rs): 195-215
Issue Size (Rs Cr): 112-124
Minimum Order Size: 66 Shares
Mcap (Rs Cr): 350-386
IPO Grading: CARE 3/5
Listing: NSE, BSE
Promoters: Lalit Agarwal, Hemant Agarwal
Grey Market: Estimate Premium of Rs 19
Book Running Lead Managers: Anand Rathi Advisors Ltd

Company Background

V-Mart Retail primarily operates in Tier-II and Tier-III towns with a chain of 'value retail' departmental stores offering apparels, general merchandise and kirana to families. It has 62 stores across 53 cities mostly in North & West India with a total area of more than 5 lakh sq ft. VMart's stores are typically located on high streets and it avoids malls.Around 69% of V-Mart's revenues are from the higher margin apparel segment while the lower margin kirana segment accounts for 19% as of
November, 2012. It has a strong vendor base with over 3,000 suppliers.

Strengths & Expansion Plans

• Focused Promoters - The promoters of V-Mart Retail have over 3 decades of retail experience and have a first mover advantage inTier-III cities. Retailing is the promoters only business which gives us confidence that they will maintain an efficient operation.
• Steady Growth - The company has grown from 22 stores in FY08 to 62 stores as of Nov-12 with manageable debt levels. V-Mart's strategy to open new stores within 150kms of its existing stores will help it capitalize on its brand to boost sales.
• Reasonable Valuations - V-Mart's rising apparel sales and low rental costs have lead to a RoE of 19.6%. The stock appears cheap on an EV/Sales and Price to Book basis relative to its listed peers.There is a possibility of a re-rating due to its high ROCE.

Risks

Rising Competitive Pressures - The entry of foreign retailers could lead to falling margins. Rapid growth in online retail is another threat to V-Mart's business as e-commerce portals are offering heavy discounts to grab market share.