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V-Mart Retail IPO Note

Contributed by Nirmal Bang

Incorporated in 2002, V-Mart Retail ltd. (VMRL) is a medium-sized hypermarket format retail chain based in New Delhi. It is a multi-brand family store, which offers apparels, general merchandise and kirana bazar. VMRL has established stores in Metro, Tier-I, Tier-II and Tier-III cities, which are primarily located as standalone stores in high-street areas and shopping hubs of such cities. VMRL follows the concept of "value retailing" to target the strata of the population belonging to the expanding "aspiring class" and “middle class and is based on customer's socio-economic conditions, purchasing power, demographic details and customer trends. VMRL currently has 62 stores across 53 cities including metro cities with a total area of more than 5 lac sq. ft.. VMRL operates all its stores on its own and has not issued any franchise.

Out of the current 62 stores, 23 are pure apparel stores, while 39 stores also have kirana bazaars, through which it sells branded packaged food and non-food items like personal care products. It doesn't sell perishable goods like fruits and vegetables. Presently, apparels account for 68% of the company's total sales, 19% comes from Kirana and balance from home and other general merchandise. The plan is to further reduce the share of groceries on account of lower margins.

VMRL is run by Lalit Agarwal, who is a cousin of Ram Chandra Agarwal of Vishal Retail. The two brothers worked together until 2002, when Lalit quit and moved on to open the first V-Mart in Ahmedabad in 2003.

Financial Highlights: The net revenue of VMRL has grown at a CAGR of 30.2% from Rs. 98.1 crore in FY08 to Rs. 281.9 crore in FY12. The PAT has grown at a CAGR of 33.04% from Rs. 3.5 crore in FY08 to Rs. 11.04 crore in FY12. The net revenue stood at Rs. 250 crore for 8MFY2013 and PAT of Rs. 13.1 crore during the same period.

Outlook

At the IPO price band of Rs. 195-215, the stock is available at PE of 19.7x on upper band and 17.8x on lower band which is way lower compared to its peers. The stock is available at an EV/EBITDA of 9.9x and 9.1x on upper and lower band annualized 8MFY13 post issue diluted which is broadly comparable to the peers. But if we compare it at ROE, ROCE and debt to equity ratios, VMRL enjoys strong return ratios compared to its peers. We feel that the company has an experienced management and comfortable capital structure. Its present in tier II and tier III cities along with a larger supplier base has the potential to grow strongly going forward. We are of the view that the issue offers an investment opportunity both for listing gain and long term investment. Therefore, we recommend “SUBSCRIBE” rating.

Details of Issue

V-Mart made a pre-IPO placement of equity shares worth Rs 26.25 crore at a price of Rs. 210. The company is selling nearly 4.5 mn equity shares in the issue which includes a fresh issue of 2.76 mn shares and offer for sale of 1.73 mn shares. The issue will constitute 25.04% of the post-issue paid-up capital of V-Mart.

Objects of the Issue

VMRL proposes to utilize funds, which are being raised through the fresh issue, to open 60 new stores, expansion of distribution centers, working capital requirements, general corporate purposes and to meet the issue expenses.