V-Mart Retail has target price of ₹1208 (50% upside) as per Anand Rathi

[Pee Vee]

Lower Limeroad losses, greater operational efficiencies and better offline margins drove a 166bp y/y higher EBITDA margin to 14.3% (~200bps above ARe and consensus). SSSG was 1%, hurt by advance Eid sales, an early monsoon and market sluggishness. Vmart’s apparel ASP grew 2%. However, Unlimited’s fell 3% led by focus on more value offerings. 13 net stores were added, with plans to add 65 net in FY26. Inventory days improved 5% y/y to 93 days; per store inventory rose slightly but was healthy. Management expects mid to high single-digit SSSG in FY26 and better absolute EBITDA, though margins are likely to be range-bound. Better products, sharper pricing, enhanced product display, supply-chain efficiencies and tech integration/ adoption would drive margins. Our FY26e/27e revenue remains unchanged while our EBITDA is 4.8% higher on avg. on consecutively better offline margins in the last few quarters. We expect ~17%/22% revenue/EBITDA CAGRs over FY25-28 while our PAT CAGR is higher at ~77% on a lower base. We retain our Buy rating, with a 12-month TP of Rs1,208, 16x Sep’27e EV/EBITDA (19x FY27e EV/EBITDA).

Greater efficiency driving EBITDA margins. Q1 revenue grew 12.6% y/y to Rs8.9bn. SSSG was 1% (8% the quarter prior; 11% a year ago). Adjusting for advance Eid sales in the previous quarter, SSSG was 5%. The gross margin was flat y/y at 35.3%, hurt by the lower contribution from Limeroad (~47% y/y decline in revenue). Excl. Limeroad, the gross margin expanded 60bps y/y led by better fullprice sales and liquidation of old inventory. EBITDA grew 27.5% y/y to Rs1.3bn and the margin expanded 166bps y/y to 14.3% led by ~55% y/y fall in Limeroad EBITDA losses, tighter cost control and operating leverage. PAT rose ~2.8x y/y to Rs336m led by lower interest expense. VMart (core) grew 14% y/y to Rs7.4bn; the EBITDA margin rose 98bps y/y to 14.4%. Unlimited grew ~11% y/y to Rs1.4bn; its EBITDA margin fell 28bps y/y to 17.7%.

Network expansion, working capital. Footfalls grew ~11% y/y, while the conversion rate was 48% and memo growth 18% y/y. 15 stores added, two closed, taking the total to 510. Sales per sq.ft./month grew 1% y/y to Rs716. Working capital utilisation fell to Rs350m (vs a temporary spike in Q4 FY25), expected, though, to rise in Q2 due to seasonal stocks but will hold at the Rs900m-1,000m avg. for FY26. OCF/FCF at Rs2.1bn/1.8bn (vs. Rs1.3bn/ 1bn in Q1 FY25).

Valuation. We retain our Buy with a 12-month TP of Rs1,208, 16x Sep’27e EV/EBITDA. Risks: Mounting competition, stores in newer clusters taking longer to ramp up, more digital investments.