I would like to initiate a thread on V2 Retail which is a micro cap discount apparel and accessories retailer catering to low income segment in tier III/IV cities. At the outset, I would like tostate that this is a high risk high reward kind of situation. However, the story seem to be turning positive in the last few months.
V2 Retail is a second attempt of RC Agarwal (RC), who had to sell out erstwhile Vishal Retail to a consortium lead by TPG via CDR. RC tried to expand too aggresively, piled up huge debt which resultedin the business going down and the eventual sell off. RC used the proceeds of the sale of Vishal Retail to start V2 retail in 2010-11 which focusses only on apparels and accessories.
Today, V2 is around 100 Cr mcap company with 16 stores spread across tier III/IV cities in Delhi, Bihar, UP, Orissa, HP and Assam. Till Fy14, V2 was into losses though the topline grew from 40 to 228 Cr from
Fy12 to Fy14. From the first quarter of Fy15, V2 started turning around at PAT level and has done 8.8 Cr PAT in the nine months of Fy15.
I would like to start with the negatives first because this is where inputs from the fellow members are most needed.
Based on the auditor comments on FY14 annual report, there are 2 points which stand out:
Contingent liability of 170 Cr : Management reponse is of the opinion that the chances of these liabilities materializing on their current books is remote.
Deffered tax of 270 Cr : The company has recognized around 7 Cr in 9M Fy15. As per the note in Q3 Fy15 result, they mentioned that the remaining amount will be reversed in due cousre of business.
Also, these dues are under disputes at various forums.
Another negative is that 96% of promoters shares are pledged. I beileve this would have been a pre-condition for the CDR
As I mentioned before, it would be great to get inputs on the above inputs from the fellow folks, especially CAs.
1). The business is turning around. RC is walking the talk. He had said in Sep 2014 that V2 will do around 270 Cr on topline and 9 Cr PAT in Fy15 and this is panning out as said.
2). As per their website (http://www.v2retail.com/about.php), company is looking to open 20-30 V2 stores by next year, which is expected to clock a combined turnover of 50-60 crore a month.
3). Based on my scuttlebutt with a store manager in Faridabad. I learnt that the stores are doing very well. He told me that the 8000 sqft store is doing 1000 Rs per sqft per month now and the target is toget 1500 in some time. He told me that the EBIDTA margins are 15%+ which is encouraging for a retailer
4). Recently, V2 has allotted warrants to Bennett Coleman (the guys who owns ET). This gives me some relief that the balance sheet issues MIGHT not be as severe as it seems. It may be wrong here.http://www.equitybulls.com/admin/news2006/news_det.asp?id=155661
5). Their plan to foray into eCommerce. They are already listing their products in eBay and Snapdeal.
Following interesting information emerge from this job posting:
-Entry into eCommerce from next month
-Ready with big warehouse of 3.5 lac sqft in Farukh Nagar, Delhi (this corroborates with the scuttlebutt I had with the Guwahati store manager). The idea is to have bulk buying at a centralized location to get cost advantage
-Hiring 50 people means this is a big initiative
Overall, this looks like a good turn around story with high risks involved. This is a bet on the guy who has done it before, failed and trying to bounce back.
Disclosure : Have been tracking it for the last 12 months and invested at average price of 30.
Some pertinent links:
Looking forward to comments/inputs from the fellow valuepickrs.