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

Review By K.M. Global Financial Services Ltd on Feb 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.


Conclusion / Investment Strategy

We recommend that investors subscribe to V-Mart Retail's IPO. The retailer is well placed to take advantage of India's demographic tailwinds as it caters to the aspiring middle class in emerging cities. The promoters have demonstrated financial discipline coupled with impressive growth. We expect the stock to perform well going forward as V-Mart's consistent growth is available at a reasonable price.

Reviewer recommends Subscribing to the issue.

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