V-Mart Retail Ltd


(Krishna kumar) #41

Results out.

(in crores)


Q1 FY15 Q1 FY14 Growth
sales 165 118 39%
NP 9.02 7.15 26%
EPS 5.03 3.98 26%

Change under schedule II of the companies act 2013 on depreciation had an effect of 1.97 crores.

http://www.moneycontrol.com/stocks/reports/vmart-retail-results-press-release-830192.html


(Varun) #42

does anyone know why gross margins were down in this quarter ?


(Aveek Mitra) #43

I attended the conference call … The reason for lower GPM is due to shrinkage reported across 30 stores vis-a-vis 12 in Q1 2014.

Other important takeaway for me…

  1. From 1st April 2014, only fashion brands and no FMCG or Kirana items in new stores.

  2. Fashion sales improvement & lower Kirana sales.

  3. Sales per sq ft. up 8% and transaction per customer up 14%.

  4. Till now 95 stores, 19 in pipeline in FY15 and 6 more in Q2 … Capex 28 - 29 Cr (8000 sq ft per store and Rs. 1400 - 1450/- psf capex as already known).

  5. 3PL logistics through APL Logistics is operational and presently routing 70% of goods.

  6. Overall sentiment on the Tier 2 and 3 cities are up but not converted to higher spending … May be due to delayed monsoon.

  7. Q2 revenue would be better … Eid, Durga Puja etc will be captured … Inventory DOS is up now for this.

  8. Other income of Rs. 1.33 is due to maturing of FMP and it is now being used for relevant capex.

  9. E&Y has been appointed as the Internal Auditor.


(Raj Panda) #44

Hi Aveek,

Thanks for the notes. I didn’t get the reason for lower GPM clearly. Could you please explain your understanding from the conf. call.

Regards

Raj


(Aveek Mitra) #45

“Shrinkage” in Retail Industry parlance means Pilferage, Theft, Shoplifting, Administrative errors which erodes the value of inventory.


(Raj Panda) #46

Thanks Aveek,

did the company provide any reasons for this ? Is this a one time kind of issue ? Or we should expect it going forward too and figure in our calculation ?

I got to know that shrinkage also includes sale of dead(non-moving) items too, if that’s the case, it may be one time ?


(Aveek Mitra) #47

Raj,

No, it is not a one time issue. It is one of the irritating area of loss for all retailers around the world. And since VMart is in scaling up and learning mode, they have to live with it.

They are taking steps like appointing E&Y as internal auditor; having live visual connectivity with all stores; better employee training and morale boosting and having a strong IT infrastructure are some of the ways management is planning to tackle it.

In Tier 2 and Tier 3 cities this Shrinkage possibility would be higher IMHO. It is difficult to tell how much and management can never give a guidance. They didn’t tell the % etc. We can hope, it reduces as % of revenue over time.

Dead inventory in my knowledge is a write off and not shrinkage. It can be considered so if something wrongly sold at a value lower than what accounting estimate for that is. It happens if there is a tagging error, wrong billing entry etc. RFID reduces it to a large extent.

About Shrinkage in Retail you may search internet and find a report by Deloitte which is good read to know its ambit and ways for improvement. I misplaced it else would have shared with you.


(Excel Monkey) #48

Why is vmart quoting at low valuations of 12x 2016

Markets don’t believe in their numbers?


(Krishna kumar) #49

This seems to be a better company in the making in the coming future. The intentions are good and the system well placed.

Few Key positives:

1.Logistics management

Acquired distribution centre which is handling 70% of the total dispatches. The company hastied up with APL logistics for better management. The system is being put in place.

As per the management things are improving with SCM(Supply chain management) and yieldingbetter results in SCM. The end objective is to Improve efficiency and scale further without any hurdles. The results could be seen in the coming quarters.

2.Capability Management

Enhance better training and equip the staff to add the required skill-set. Focusing on product development, merchandising, fashions etc.

Recruited a senior official from trent as VP , Merchandize. Things to improve in this sector. (I remember Mayur recruiting Ramdas Acharya, Senior VP Technical and VK Khanna, SVP operations to improve their operations and efficiency and quality and how the things turned around after that). Need to watch this space further.

whole leadership team aggressive and informed. Committed to meet the expectations.

3.Technology Management

Tied up with technology provider(developers- IITians), to connect the stores online.Apart from data points , administration can also be seamless and online and helpful. Cost of purchase very less.

Particularly useful in visual merchandising, decision making, connecting with the staff online etc.

4.Governance/Audit Management

To improve the internal audit process and compliance and to further provide transparency, hiring EY(Ernst&Young) for internal audit process where the firm has domestic and international experience.

Some metrics for this quarter on operations

1.95 stores increased from 76 in 82 cities (61 - fashion) 34(composite) in 12 states .total sq feet at 7.62 lakh

2.70% of the stores company operating was monsoon affected for Q1.

3.Customer confidence good with respect to earning potential. Hopes this bring in and translate to consumption in the coming quarters.

4). Slight fall in sales in apr and may but made it up in june. Q2 expect to be stable and slightly better because of festivals preponed.

5). 4 stores opened another 6 in in this quarter. Will work to meet 25 stores for this year.

6.sales per sq foot improved to 794/- from 734.( 8% growth)

7). ssg of 9% (volume 4%) against 8% (volume of 1.5%) previous year.

8). 90:10 - contribution of fashion and kirana.

9). Transaction size avg 601 from 527.

10). footfalls 32.75 lakhs to 42.15 lakhs. conversion rate reduced at 65% from 68%.

11.will follow cluster based approach.

12). full year capex at 29 crores. store takes around 2.5-3 years to break even.

shrinkage at 1.5% vs 1%. Store audit done at 30 vs 12. increase of 150%. Also reason for reduced GM.


(Vinod MS) #50

Hi Excel,

EPS for 2014 was Rs 14. At 28% growth in FY15 the EPS will be around 18. To trade at 12 times FY16 earnings you are assuming more than 60% growth in FY16? Could you share your thoughts on this?

I like V-Mart, but cannot factor in more than 25-30% growth for next 3 years.

PS: My views could be biased as I have vested interests in V-Mart


(Excel Monkey) #51

Hi Vinod I am referring to EPS of 30 projected by one of the brokers

Why is vmart quoting at low valuations of 12x 2016

Markets don’t believe in their numbers?


(HG) #52

Anand Rathi puts a target of 415 on V-Mart -


(HG) #53

The Government may allow foreign portfolio investors to own even a majority stake in multi-brand retail.

The National Democratic Alliance (NDA), which is opposed to foreign direct investment (FDI) in supermarkets and department stores, or so-called multi-brand retail, is considering allowing foreign portfolio investors to own even a majority stake in retail companies.

Read more at: http://www.livemint.com/Politics/R5N8UNZu2bsq9Qb1ZVXyXJ/Retailers-may-get-foreign-portfolio-investor-boost.html?utm_source=copy

The National Democratic Alliance (NDA), which is opposed to foreign direct investment (FDI) in supermarkets and department stores, or so-called multi-brand retail, is considering allowing foreign portfolio investors to own even a majority stake in retail companies.

Read more at: http://www.livemint.com/Politics/R5N8UNZu2bsq9Qb1ZVXyXJ/Retailers-may-get-foreign-portfolio-investor-boost.html?utm_source=copy


(HG) #54

Sorry about the multiple links. No idea what happened there.


(Ashish Pandey) #55
Mar13 Mar12 Mar11 Mar10 Mar09
EPS
10.03 15.04 8.53 3.39 1.53
10.03
15.04 8.53 3.39 1.53
BookValue 82.22 74.4 59.86 54.54 51.21
ROE 13.5 25.12 15.5 6.6
Earning Per Share (Rs) 10.03 15.04 8.53 3.39 1.53
Equity Dividend (%) 10.00 0.00 0.00 0.00 0.00
Book Value (Rs) 82.22 74.44 59.86 54.77 51.21
Earning Per Share (Rs) 10.03 15.04 8.53 3.39 1.53
Equity Dividend (%) 10.00 0.00 0.00 0.00 0.00
Book Value (Rs) 82.22 74.44 59.86 54.77 51.21
Earning Per Share (Rs) 10.03 15.04 8.53 3.39 1.53
Equity Dividend (%) 10.00 0.00 0.00 0.00 0.00
Book Value (Rs) 82.22 74.44 59.86 54.77 51.21
Earning Per Share (Rs) 10.03 15.04 8.53 3.39 1.53
Equity Dividend (%) 10.00 0.00 0.00 0.00 0.00
Book Value (Rs) 82.22 74.44 59.86 54.77 51.21

Above data from Moneycontrol, ROE calculated by me. ROE isn't great at all, business is selling at 40 times BV, 60 times EPS. I think growth can be one thing but i guess even if it grows for 25% every year for the next 5 years, which is very unlikely, even then the valuations don't justify themselves. Views invited.


(HG) #56

Are your numbers correct? Screener.in shows: p/e - 38, p/b - 5.89, roe - 17.8


(Ashish Pandey) #57

Hi HG,

P/E is correct, yes P/B is wrong, and ROE for long term would be the one i calculated. for the last 12 months it can be around 20% or so.


(Krishna kumar) #58

V-mart target 200 total stores from current 101 in the next 3-4 years.


(seshukumar) #59

I have gone through this thread in detail and also visited some of the v mart stores. Since I have a long experience in retail business, I have tried to build the p& l of this business bottom up but some how the numbers are not matching and numbers seem to be overstated. I will state some reasons as to why the numbers seem overstated.

In retail , majority of the costs are incurred at a store level. While the number of manpower and rent per sft as given in the thread seem to be online with industry standards, the overall manpower costs are much lower than what they would be.

Wages per manpower in retail are largely dictated by minimum wages set by government and there is no significant difference in manpower costs between tier 1, tier 2 and tier 3 towns since governments decide the minimum wages at a state level.

It was mentioned in the thread that there are 32 people per store. The minimum wages in most states work out to about 10k per month.Assuming two people at managerial/ supervisory level and remaining 30 on minimum wages, manpower costs per store would be around 4 lacs per month or 48 Lakhs per annum. For 95 stores , this would be about 45 cr plus head office manpower of about 5 cr per annum.

Again this 50 cr , they have incurred only 38 crs last year.

Some of the costs such as obsolescence cost incurred towards liquidating unsold stocks and shrinkage seem to be understated since the stock audit was done only in 30 stores. Liquidation of unsold stocks can be controlled resulting in overstatement of margins in one year and rolling over of stocks to next year.

The big problem with this business model is that the growth comes only by adding new stores and one or two bad years where the internal accruals are not sufficient to provide capex for new stores can halt the expansion. From my personal observation at the stores, they are not really attracting premium clientele and are competing with local stores on price. Hence unlike mass distribution FMCG brands , pricing power is low.

Gone through the Anand Rathi research report . It seems to be highly overstating the potential of the business

. I don’t think it is worth comparing this with page industries opportunity since it has neither the pricing power nor the brand pull to scale up at the same store level without incurring capex for opening new stores.

Link: http://www.business-standard.com/article/pti-stories/v-mart-to-have-up-to-200-stores-in-next-four-years-114101300630_1.html


(Varadharajan Ragunathan) #60

Wonderful analyis - agree with your thoughts. retail in India is one of the few businesses that does not display economies of scale - simply because rentals in new places are much higher than what you can squeeze by increased bargaining power on the procurement side.

Retail is a business whose returns diminish rapidly with expansion - because of the dynamic of competing with non tax paying, organized sector where labour is essentially free.

Even I have had doubts on the numbers of V-mart for a long time.