V-Mart Retail Ltd


(Raj Panda) #21

Now Mr. Biyani seem to be targeting a similar model of smaller neighborhood stores with 4-5k sft stores for fashion garments.

http://www.business-standard.com/article/management/big-bazaar-ups-its-fashion-sense-113111000676_1.html


(Kiran) #22

Not really a competition to Raj - this sentence from the article clinches it (for now) - “The retail reach would span all ofBig Bazaar’s stores and 30 standalone FBB outlets. “Hypermarkets/supermarkets have 10 to 15 per cent sales coming from fashion but Big Bazaar gets 35 per cent of sales from fashion,” Biyani says”.

FBB stores will be in cities, competing with the likes of Reliance Trends. Tier II and Tier III is still virgin territory :slight_smile:

The major moat for V-mart as I look at it are the learnings of supply chain logistics in tier-2 and tier-3 cities. We all know how roads are leading to some of these small time towns. Not easy for any player (all established players have experience in Tier 1 only, and none in Tier 2, much less Tier 3).

That being said, competition will come some where down the line, and V-mart has to fight it. Not like the business world is going to give you anything on a platter :slight_smile: The hallmark of any great business is how they interplay their short term operations management and competition and also kick in long term growth opportunities. So far on V-mart, it’s been good.

Currently, it’s a bet on it market cap (350 cr) vs potential market size (anybody’s guess how big that is!) and the mgmt’s ability to exploit the gap (which so far, they have done well with prudent balance sheet mgmt).

Disc: Invested.


(JatinK) #23

Hi Kiran & Nikhil & others,

Was looking at this deeper. While analyzing IRR from new storeperspective, here are the numbers-

In Rs Per square Foot)—

Capex= 1300/-

Inventory= 1300/-

Sales= 8800/- (735 per month)

PAT Margin= 4.7%

So, PAT= 414/-

So **ROCE at PAT level= 15.9% **(414/ 2600) which isn’t looking amazing.

So, Will profits grow for VMart?? Looks highly probable due to new store addition & same store growth.

**But the key question is Will the growth be Profitable??? **At only 15-16% ROEs (without leverage) things don’t look very promising from this point of view.

Am I missing something?

PS- Have calculated numbers from FY13 AR also & they seem to be similar to what Kiran has quoted.

now)Requires


(Nikhil Moryani) #24

Hey Jatin,

The way to look at it is over a period of years. The RoE will keep inching up year after year as the same store sales grow. Capital is tied up once or the asset is build once (Working Cap is obviously revolving and keeps filling itself) and with improving asset turns,the RoE will move up given profits after maintenance CAPEX and increase in WC are ploughed into a new store or returned back to owners.

The co. will hopefully keep ploughing money in new stores as the opportunity is huge.


(Nikhil Moryani) #25

Results will be out today. Anyone has ConCall details,if at all the co. is conducting one??


(Krishna kumar) #26

Results:

Sales increased 67% from to 119 to 195 crores (YOY)

NP increased 37% from 15.29 to 21.2 crores (YOY)

key monitorables:

NP margin decreased to 7.2% from 8.6%

Employee expenses increased from 6.66 crs to 11.4 crs - 70% increase

Purchase of stock in trade from 85 to 136 crores - 60% increase.

balance unutilized IPO Proceeds of 36.55 crores.

working capital planned of 10 crores utilized fully.


(narendra ) #27

I am a bit sceptical with the management.

During recent quarter press releases management had this in bold letters “V-Mart reports Sales increase by 63% and Pat by 37% in YOY Q3 FY14”

But eps is flat when compared to last year 7.85 vs 7.38 this information is nowhere seen in the press release with these bold sales figures.


(narendra ) #28

even 9 months eps growth rate is marginal 13.4 vs 12.09


(Ramakrishna) #29

Narendra please look at the share capital. It has changed YoY due to IPO. It is better to compare PAT YoY in cases where share capital has changed.

**
**

Regards


(narendra ) #30

yes they have infused capital, opening new stores and the profit growth is not keeping pace with equity dilution.Though 9 month is small period but management is claiming that they are able to breakeven most of new stores in couple of months .


(Pankaj J) #31

Today there is an ad regarding franchise for the pune. So i think they are planning branches in pune now.


(JatinK) #32

My report on VMart for Safal Niveshak Value Investing Contest-

http://www.safalniveshak.com/value-investing-contest-v-mart-retail/


(Pankaj J) #33

Hi Jatin,

Management keeps a good check on costs. The companyâs

rental costs and selling & distribution expenses are the lowest

in the industry. They have also stopped offering Kirana

products (being lower margin products) in their new stores.

Not sure but i feel stopping Kirana products is not a good move. I like Dmart and go to dmart more often because of Kirana offerings. While going for Kirana i go to there cloth section and other area. If Kirana is not there then there are less chances that i will go to Dmart. Will the same not apply to Vmart ? I don’t have facts and figures but clothes and other apparel are high inventory model but big wastage or remaining items needs to be sold out at discount… this is not the case with Kirana items…

Thanks

Pankaj


(Kiran) #34

Pankaj,

You need to check the improvement in margins and sales per sq ft and reduction in inventory days and reduction in wastage (perishability) etc. post 2011 when V-mart made a deliberate strategy to avoid Kirana.

V-mart’s major presence is in Tier-3 cities, while D-mart’s in Tier 1 (even Pune is almost tier-1). There is a massive difference in logistics and transportation costs between tier-1 and tier-3.

As long as the focus exists and scalability is controlled and visible, both businesses are good.

I would suggest you check V-mart’s numbers and their trend over the past 2-3 years to further get convinced.


(Jatin Khemani) #35

I visited 2 of their stores in Delhi and interacted with store managers for couple of hours… this definitely looks interesting…

I focused more on inventory management so here are some observations worth sharing: (These stores are 6-8 years old, One store manager is with company from 6 years, cashier from 9 years…)

  • They do not have any warehouse in stores; everything a store has… is on display which makes sure things keep moving…and also keeps a check on dead stock… (Vishal used to keep way more inventory than display space and hence high amount of dead stock, apracticewhich they adopted due to learning from Vishal’s downfall)
  • On an average 10-15% of the stock remain unsold. This ‘slow moving’ stuff is pushed during mega sale which is announced every 6 months. 70% of this stuff is sold during high discount period, rest is sent back to HO which either writes it off or sends it to other stores where its moving. They wrote off ~5% of inventory each in FY12 and FY13. (I have a feeling dead stock should be more than this…OR is it that they are tooo efficient in managing it?)
  • The main focus is to create value for customer i.e. sell at dirt cheap prices, literally equivalent to guy selling on the road side. They had Ts at 99-199, Formal Shirts 199-499, Jeans from 495 onwards… add to it ‘2+1/3+1’ schemes… Quality was Okay, some of their in house brands (white label) are now earning a name for themselves like ‘Cavana’ for Formal Shirts, ‘Flick’ for Jeans (Rs 645)…
  • 15,000 SKUs, 50,000+ Inventory
  • Each had a staff of 32, Size 5000-5500 sqft, Rentals of 35-40 psf and doing avg. sales of 40 lacs a month
  • Overall employee feedback regarding working and professionalism was encouraging… So far it doesn’t look like a typical lala company…

@Kiran thanks for sharing the Wal-mart store expansion visual, shows rationality of following cluster based expansion

I am meeting the management next week, in case you guys have any doubts/questions…just shoot me a mail at [email protected]


(HG) #36

Jatin,

Thanks for doing the scuttlebutt and sharing your observations!

-HG


(Raj) #37

Does this mean anything serious?

http://www.bseindia.com/xml-data/corpfiling/AttachLive/V_Mart_Retail_Ltd_290414.pdf


(HG) #38

If there is some hera-pheri going on, we should thank the auditors. If not, this uncertainty will help LT investors accumulate some more. Lets keep fingers crossed!

@Jatin - if possible, could you share details from your meeting with the mgmt.


(Augustine Jos) #39

management meet update by nirmal bang:


(Aveek Mitra) #40

I was reading with interest the V-Mart thread as I was looking to shift partly from PAGE. I won’t get into any financial but what is the value driver of a retail play? Some arbitrage somewhere (sourcing and selling cheaper or spotting a trend earlier or some process of managing dead inventory better than others) … but eventually these spreads gets thinner as it is one of the most transparent type of business. Any trained eye can get in a shop and in about 15 minutes get the idea of what’s going on and what’s the arbitrage?

How long this arbitrage can last? 2 years or 20 years is anybody’s guess … The mortality is huge … I doubt if PAGE can continue its growth for next 10 years in spite of steller all round performance. Why people will keep buying Jockey? There is always a danger of buying the biggest as their own weight is the biggest problem (any investor knows that how outsized return diminishes with size of portfolio).

Coming back to V-Mart my current conclusion (may change over time if I get newer insights) can be summed by a quote from Buffett … “A horse that can count to ten is a remarkable horse – Not a remarkable Mathematician” … If I don’t get a remarkable mathematician, may temporarily look into this remarkable horse with higher level of “Stress per Share”…