BUY Robust quarter, margins surprise! - HDFC securities - 3QFY20 - HDFC sec... · Note: Winter-wear is typically priced higher which in turn aids avg, selling price (ASP), which in

RESULTS REVIEW 3QFY20 08 FEB 2020

V-MART BUY

HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO>& Thomson Reuters

Robust quarter, margins surprise! V-MART continues to track strong growth, albeit expansion-led. SSSG print remains uninspiring (1%). What surprised us positively were higher margins, low SSSG notwithstanding. 1. Clockwork-like execution, 2. Higher full price sell-through, 3. Better merchandise sourcing margins courtesy vendor consolidation underpinned margin expansion. Store expansion remains tactical – in existing Tier 1/2 catchments to tighten supply chain costs and in catchments with struggling peers (credit cycles running up for the latter) to gain market share. HIGHLIGHTS FOR THE QUARTER Growth remains expansion-led, SSSG remains nearly

absent: Net revenues grew by 20.7% to Rs. 5.62bn (in-line) largely expansion-led. Value/volume SSSG stood at 1%/-3% for 3QFY20.

Margins surprise positively: What took us by surprise was gross margin expansion of 75bps YoY to 36.3% (est 34.5%), despite low SSSG. Gross margins improved led by 1. Higher full price sell-through, and 2. Better merchandise sourcing margins courtesy vendor consolidation We had built in competitive gross margins to factor in expected liquidation across the value fashion tail.

Sales velocity dips marginally: Revenue per sq. ft dipped 3.5% YoY to Rs. Rs. 11,546 due to 1. Increasing mix of new stores in the portfolio, 2. Delayed onset of severe winter.

Note: Winter-wear is typically priced higher which in turn aids avg, selling price (ASP), which in turn aids revenue per sq. ft. Adj EBITDA per sq. ft. grew 3% YoY to Rs. 1,939.

Cost of retailing under control: Cost of retailing (opex as % of sales) improved during the quarter (down 26bp YoY to 19.5%) as the company 1. reined in A&P spends in Nov/Dec, YoY, 2. Tightened supply chain and transportation costs, 3. Lowered wastage via re-using of carton boxes.

Aggressive store expansion: VMART added 18 stores in 3Q. (vs. 10/19 stores in 3Q/9MFY19) and added 100k sq. ft (taking the retail space to 2.1mn sq. ft). Store expansion remains tactical – in catchments with 1. Struggling peers (credit cycles running up for the latter), 2. Existing Tier 1/2 geographies to tighten supply chain costs.

STANCE 1) Strong execution, 2. Insulation from an online onslaught and 3) inherent advantage within the ecosystem given the tail's precarious working capital position makes VMART our top pick in apparel retail. We revise our DCF-based TP upwards to Rs. 2,500/sh (earlier Rs. 2,150/sh). Revision is a function of 1. DCF roll-over to FY22, 2. 3/7% increase in FY21/22 EBITDA estimates to factor in better gross margins given the focus on full-price sell-through/fresh merchandise.

Financial Summary (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Revenue 5,622 4,658 20.7 3,142 78.9 12,224 14,337 17,303 21,220 26,209 Adj EBITDA 944 733 28.7 (83) NM 1,328 1,329 1,353 1,716 2,185 APAT 661 417 58.5 (106) NM 777 616 782 969 1,211 EPS (Rs) 32.1 23.0 39.5 (9.9) NM 42.9 34.1 43.2 53.6 66.9 P/E (x) 56.7 61.7 56.4 45.5 36.4 EV/EBITDA (x) 32.8 32.8 32.2 25.7 20.1 Core RoCE(%) 29.4 21.5 20.0 19.4 19.7

Source: Company, HDFC sec Inst Research

INDUSTRY RETAIL CMP (as on 07 Feb 2020) Rs 2,280 Target Price Rs 2,500

Nifty 12,098

Sensex 41,142

KEY STOCK DATA

Bloomberg VMART IN

No. of Shares (mn) 18

MCap (Rs bn)/(US$ mn) 41/579

6m avg traded value (Rs mn) 58

STOCK PERFORMANCE (%)

52 Week high / low Rs 2,867 / 1,604

3M 6M 12M

Absolute (%) 30.3 23.2 (15.8)

Relative (%) 29.1 11.0 (27.1)

SHAREHOLDING PATTERN (%)

Dec-19 Sep-19

Promoters 51.99 51.99

FIs & Local MFs 10.29 8.08

FPIs 26.05 28.28

Public & Others 11.67 11.65

Pledged shares 0 0 Source : BSE

Jay Gandhi [email protected] +91-22-6171-7320

Rutvi Chokshi [email protected] +91-22-3021-2080

V-MART: RESULTS REVIEW 3QFY20

Page | 2

Earnings Call Highlights 3Q saw a lot of disruptions in operating hours of

stores due to the unrest caused by CAA/NRC protests in north region, eastern region, UP and parts of Rajasthan where V-MART mainly operates. The store in J&K operates at 50% capacity because of lesser working hours due to tense environment. With the progressing economic slowdown, consumption demand has lulled. All these factors have led to the poor growth of SSSG.

Due to the late onset of winter in 3Q, ASP of apparel of V-MART remained flat as there was a lower sale of winter wear which is a big ticket product. Non apparels ASP was higher as it focused on keeping higher priced non-apparels on display during the festive season.

Gross margins grew due to reduced sourcing costs and lower discounting. V-MART was able to able to sell more full priced merchandise.

V-MART tried to grow on operating efficiencies by implementing and aiding digitization, automation and increasing productivity.

V-MART maintains a tight control over its

advertisement strategy and reviews it monthly. This has led to lesser ad spends in Nov and Dec as V-MART resorted using cost effective methods of promotion- social media led promotion, personalized campaigns and loyalty programs. A&P spends to remain at 2.2-2.4% of revenues over the medium to long term.

V-MART consistently works towards reduce of wastages. It implemented a carton recycling program where it recycled and reused 50,000 cartons in Dec.

V-MART continues to ramp up expansion. It plans on opening 55-60 stores in FY20. It plans to add 20% stores each year. It plans to penetrate deeper into its existing markets and gradually expanding its presence in the neighboring markets. It focuses on establishing more stores in Tier-2/3/4 cities.

9MFY20 capex/FCF was at Rs 410 mn/ -20 mn.

Management expects shrinkage to remain at 1.3-1.4% despite higher provisioning in 3Q


Page | 3

Quarterly Financials Rs. Mn 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY20E FY19 YoY (%) Net Revenue 5,622 4,658 20.7 3,142 78.9 17,303 14,337 20.7 Material Expenses 3,581 3,002 19.3 2,162 65.6 11,736 9,703 21.0 Employee Expenses 406 346 17.2 390 4.0 1,569 1,257 24.8 Other Operating Expenses 467 577 (19.0) 476 (1.9) 2,645 2,048 29.1 EBITDA 1,168 733 59.3 113 931.9 1,353 1,329 1.8 Depreciation 245 72 241.0 223 9.9 323 276 16.7 EBIT 923 662 39.6 (109) NM 1,031 1,053 (2.1) Other Income 4 17 (75.0) 12 (63.2) 51 59 (13.9) Interest Cost 158 9 1,698.5 131 20.5 37 16 131.1 PBT before exceptional 770 670 14.8 (229) NM 1,045 1,096 (4.7) Exceptional - - - - - - (98) NM PBT 770 670 14.8 (229) NM 1,045 998 4.7 Tax 188 253 (26.0) (48) NM 263 382 (31.1) Share of Associate Earnings - - - - - RPAT 582 417 39.7 (180) NM 782 616 26.8 APAT 660.5 417 (125.5) (106) NM 782 616 26.8 EPS 32.1 23.0 39.5 (9.9) NM 43.2 34.1 26.8

% of Net Revenue 3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps) FY20E FY19 YoY (bps) Material Cost 63.7 64.4 (75) 68.8 (513) 67.8 67.7 15 Employee Expenses 7.2 7.4 (22) 12.4 (520) 9.1 8.8 30 Other Expenses 8.3 12.4 (407) 15.2 (685) 15.3 14.3 100 EBITDA 20.8 15.7 503 3.6 1,717 7.8 9.3 (145) Tax Rate(% of PBT) 24.4 37.8 (1,345) NM NM 25.2 38.3 (1,309) APAT 11.7 8.9 280 (3.4) NM 4.5 4.3 22 Source: Company, HDFC sec Inst Research


Page | 4

Story in Charts Revenue and growth (Rs. mn, YoY %) Value SSSG % at 1% and volume SSSG % at -3%

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Adj. EBITDA and margin (Rs. mn, %) Gross profit margin and Adj. EBITDA margin (%)

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Net Revenues impressively grew by 20.7% YoY SSSG remained dismal at 1%/-3% value/volume for 3QFY20. Dent was caused due to challenging demand due to passive market sentiments and lower working hours because of NRC/CAA protests. Cost of retailing is falling. VMART is focusing on operating efficiency improvement by bringing in more digitisation, automation and increasing productivity. It also reduced A&P spends in Nov and Dec.

12.6

18.1

14.6

8.4

26.6

15

.9

25.4

19.8

20.7

-

5.0

10.0

15.0

20.0

25.0

30.0

-

1,000

2,000

3,000

4,000

5,000

6,000

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Revenue (Rs mn) YoY (%) (RHS)

-10

-5

0

5

10

15

20

25

30

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Value SSSG% Volume SSSG%

14.8

5.

9 11.8

3.

5 17

.4

7.8 12

.0

(0.5

)

15.7

5.2 8.

6

(2.6

)16

.8

(5.0)

-

5.0

10.0

15.0

20.0

(200)

-

200

400

600

800

1,000

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Adj EBITDA (Rs mn) Adj EBITDA margin (%,RHS)

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

60.00

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Gross Profit margin (%) Adj EBITDA margin (%)


Page | 5

V-MART: Footfalls and conversion ratio (%) V-MART: Transaction size up by only 0.2%

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research V-MART: Average total selling price down by 39% YoY

V-MART: Average apparel selling price up by ~74% YoY


Conversion ratio stable at 60%. Effective footfalls grew by 21% YoY. Transaction size grew at such a low pace YoY due to the delayed onset of winter as winter merchandise is priced higher. Average total selling price remained flat due to the same reason.

8.20

7.40

8.90

7.70

10.0

0

8.40

11.2

0

8.40

11.5

0

4.62

4.26

5.34

4.56

5.65

4.91

6.66

5.00

6.84

56

58

6059

57

58

60 60 60

54

55

56

57

58

59

60

61

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Footfalls(in Mn) Effective footfalls(in Mn)Conversion Ratio (%)-RHS

847

745

718

631

882

749

720

709

884

2.8

2.9

2.7

(2.0

)

4.1

0.5

0.3

12.4

0.2

(4.0)(2.0)-2.0 4.0 6.0 8.0 10.0 12.0 14.0

0100200300400500600700800900

1,000

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Transaction size (Rs.) YoY (%)-RHS

445

206

187

164

436

206

269

298

266

73.8

2.0

(0.5

)

(9.9

)

(2.0

) -

43.9

81.7

(39.

0)

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

050

100150200250300350400450500

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Average Total selling price (Rs) YoY (%)-RHS

252

321

264

257

251

334

194

188

436

(43.

1)

(2.1

) (1.9

)

(8.4

)

(0.4

)

4.0

(26.

5)

(26.

8)73

.7

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

050

100150200250300350400450500

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Average Apparel selling price (Rs) YoY (%)-RHS


Page | 6

V-MART: Store additions rising V-MART: Added 0.4 mn sq ft YoY

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research V-MART: Sales per sq. ft. per month declined by 6.5% YoY due to the late onset of winter and more new store adds

V-MART: Presence in cities


13%

13%

14%

15%

17%

16%

17%

18%

21%

25%

24%

25%

24%

10% 23

%

11%

12%

13%

52%

52%

50%

48%

62% 46

%

59%

56%

54%

10%

11%

12%

13%

12%

14%

13%

13%

12%

0%

20%

40%

60%

80%

100%

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Tier 1 Tier 2 Tier 3 Tier 4

V-MART can be seen aggressively adding stores: 57/18 additions YoY/QoQ in 3QFY20. Highest-ever growth of stores in any quarter. Sales per sq. ft. per month declined by 6.5% YoY due to the late onset of winter and more new store adds. V-MART wants to expand its presence in Tier-2/3/4 cities. It focuses on expansion by penetrating deeper into the existing markets.

167

171

179

190

200

214

227

239

257

31

30 30

33 33

43

48 49

57

0

10

20

30

40

50

60

0

50

100

150

200

250

300

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Stores (#) Additions (YoY)-RHS

1.4

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

-

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

0.0

0.5

1.0

1.5

2.0

2.5

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Retail Space (mn sq ft) Additions (YoY)-RHS

957

748

874

611

1,00

6

722

874

590

941

0

200

400

600

800

1,000

1,200

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

Sales per sq ft per month (Rs)


Page | 7

Quarterly snapshot (Actual vs HDFC estimates) Rs. Mn 3QFY19 2QFY20 3QFY20 YoY (%) QoQ (%) 3QFY20E Variance (%) Net Revenue 4,658 3,142 5,622 20.7 78.9 5,614 0.1 Total COGS 3,002 2,162 3,581 19.3 65.6 3,677 (2.6) Gross Profit 1,656 979 2,041 23.2 108.4 1,937 5.4 Gross Profit Margin (%) 35.6 31.2 36.3 75 bps 513 bps 34.5 180 bps Total Operating expenses 923 866 873 (5.4) 0.8 926 (5.8) Reported EBITDA 733 113 1,168 59.3 931.9 1,010 15.6 EBITDA Margin (%) 15.7 3.6 20.8 503 bps 1717 bps 18.0 278 bps Adj EBITDA 733 (83) 944 28.7 NM 808 16.8 Adj EBITDA Margin (%) 15.7 (2.6) 16.8 105 bps NM 14.4 240 bps Depreciation 72 223 245 241.0 9.9 225 8.7 EBIT 662 (109) 923 39.6 NM 785 17.6 EBIT Margin (%) 14.2 (3.5) 16.4 222 bps NM 14.0 243 bps Finance cost 9 131 158 1,698.5 20.5 10 1,480.3 Other income 17 12 4 (75.0) (63.2) 15 (71) PBT 670 (229) 770 14.8 NM 790 (2.6) Exceptional Item - - - - Tax Expenses 253 (48) 188 (26.0) NM 199 (5.7) Effective Tax Rate (%) 37.8 21.1 24.4 (1345 bps) NM 25.2 (81 bps) Share of associate earnings - - - - EO items - - - - - PAT 417 (180) 582 39.7 NM 591 (1.6) APAT 417 (106) 661 58.5 NM 591 11.7 APAT margin (%) 8.9 (3.4) 11.7 280 bps NM 10.5 121 bps Source: Company, HDFC sec Inst Research


Page | 8

KPIs 3QFY19 2QFY20 3QFY20 YoY (%) QoQ (%) 3QFY20E Variance (%) Revenue Mix 4,658 3,142 5,622 20.7 78.9 Apparels 3,722 2,419 4,464 19.9 84.5 Non-apparels 647 408 787 21.5 92.7 Kirana 289 314 371 28.5 18.1 No. of Stores 200 239 257 28.5 7.5 257 - Retail Space (mn sq ft) 1.70 2.00 2.1 23.5 5.0 Sales per sq ft per month (Rs) 1,006 590 941 (6.5) 59.5 Footfalls(lakhs) 100 84 115 15.0 36.9 Conversion rate % 57 60 60 5.3 - Effective footfalls(lakhs) 57 50 68 21.1 36.9 Shrinkage(% of sales) 1 2 2 61.5 40.0 Transaction size (Rs) 882 709 884 0.2 24.7 Average store size(sqft) 8,500 8,368 8,171 (3.9) (2.4) SSSG%

Value 11 1 1 (90.9) - 3 (66.7) Volume 14 (8) (3) NM NM -

Operating Expenses (Rs mn) Employee expenses 346 390 406 17.2 4.0 449 (9.7) Other expenses 577 670 693 20.3 3.5 477 45.3 Source: Company, HDFC sec Inst Research (Note: Other expenses are Pre-IND-AS and hence comparable) Estimate change

(Rs mn) FY20E FY21E FY22E

New Old Change (%) New Old Change (%) New Old Change (%) Revenue 17,303 17,217 0.5 21,220 20,976 1.2 26,209 25,834 1.5 Gross Profit 5,567 5,342 4.2 6,828 6,508 4.9 8,433 8,015 5.2 Gross Profit Margin (%) 32.2 31.0 115 bps 32.2 31.0 115 bps 32.2 31.0 115 bps EBITDA 1,353 1,342 0.8 1,716 1,660 3.4 2,185 2,070 5.6 EBITDA margin (%) 7.8 7.8 3 bps 8.1 7.9 17 bps 8.3 8.0 33 bps APAT 782 805 (2.9) 969 938 3.4 1,211 1,132 7.0 APAT margin (%) 4.5 4.7 (16 bps) 4.6 4.5 10 bps 4.6 4.4 24 bps EPS (Rs) 43.2 44.5 (2.9) 53.6 51.8 3.4 66.9 62.5 7.0 Source: Company, HDFC sec Inst Research


Page | 9

Assumptions

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E Revenue (Rs mn) 2,819 3,835 5,750 7,202 8,093 10,017 12,224 14,337 17,303 21,220 26,209 YoY (%) 31.3 36.0 49.9 25.3 12.4 23.8 22.0 17.3 20.7 22.6 23.5 SSSG (%) 13.2 8.6 3.7 2.3 5.2 4.9 Expansion-led growth (%) 9.4 12.4 13.2 18.0 16.5 17.7 SSSG - Volume (%) Revenue mix (%) Apparel 64.0 68.8 76.8 74.7 76.9 78.7 79.7 79.9 81.0 82.3 83.9 Non-apparel 12.0 11.9 11.1 15.9 15.3 14.3 14.0 13.6 12.9 12.0 10.9 Kirana 24.0 19.3 12.2 9.4 7.8 7.0 6.3 6.4 6.1 5.7 5.2

ASP 99 119 156.8 191 200 208 207 203 -Apparel (ASP) 192 202 235.8 261 327.9 334 323 320 Trasaction size (Rs) 462 489 576.2 625.4 663 713 750 756 Bill Cuts (mn) 6.1 7.8 10.0 11.5 12.2 14.0 16.3 19.0 Stores (#) 55 69 89 108 123 141 171 214 265 330 415 Additions (#) 10 14 20 19 15 18 30 43 51 65 85 Retail Area (mn. Sq, ft) 0.5 0.6 0.7 0.9 1.0 1.2 1.4 1.8 2.2 2.7 3.4 Additions (mn. Sq, ft) 0.1 0.1 0.2 0.2 0.1 0.2 0.3 0.4 0.4 0.5 0.7

Per sq. ft metrics Revenue 6,863 7,563 8,928 8,947 8,564 9,107 9,296 8,878 8,662 8,592 8,509 Gross Profit 2,044 2,308 2,664 2,561 2,519 2,718 2,982 2,870 2,787 2,765 2,738 EBITDA 687 785 811 791 654 771 1,010 823 678 695 709

Margins (%) Gross margin 29.8 30.5 29.8 28.6 29.4 29.8 32.1 32.3 32.2 32.2 32.2 EBITDA margin (%) 10.0 10.4 9.1 8.8 7.6 8.5 10.9 9.3 7.8 8.1 8.3 Source: Company, HDFC sec Inst Research


Page | 10

Income Statement Year End March (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Revenues 12,224 14,337 17,303 21,220 26,209 Growth (%) 22.0 17.3 20.7 22.6 23.5 COGS 8,303 9,703 11,736 14,393 17,776 Employee Expense 984 1,257 1,569 1,914 2,351 A&P Expense 262 339 461 545 646 Rent Expense 526 672 831 1,037 1,307 Other Expenses 821 1,037 1,352 1,616 1,944 EBITDA 1,328 1,329 1,353 1,716 2,185 EBITDA Growth (%) 56.7 0.1 1.8 26.8 27.4 EBITDA Margin (%) 10.9 9.3 7.8 8.1 8.3 Depreciation 229 276 323 438 562 EBIT 1,099 1,053 1,031 1,278 1,623 Other Income (Including EO Items) 41 (39) 51 41 22

Interest 15 16 37 23 27 PBT 1,125 998 1,045 1,295 1,618 Total Tax 348 382 263 326 407 RPAT 777 616 782 969 1,211 Exceptional (gain)/loss - (98) - - - Adjusted PAT 777 714 782 969 1,211 APAT Growth (%) 77.0 (8.1) 9.4 24.0 24.9 Adjusted EPS (Rs) 42.9 39.5 43.2 53.6 66.9 EPS Growth (%) 76.7 (8.1) 9.4 24.0 24.9


Balance Sheet Year End March (Rs mn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital - Equity 181 181 181 181 181 Reserves 3,293 3,911 4,656 5,571 6,716 Total Shareholders Funds 3,474 4,093 4,837 5,752 6,897 Long Term Debt 3 0 0 0 0 Short Term Debt 3 219 219 219 219 Total Debt 6 219 219 219 219 Net Deferred Taxes (92) (118) (118) (118) (118) Other Non-current Liabilities & Provns 42 60 60 60 60

TOTAL SOURCES OF FUNDS 3,430 4,254 4,998 5,913 7,058 APPLICATION OF FUNDS Net Block 1,447 1,655 2,054 2,991 3,529 CWIP 35 40 40 40 40 Other Non-current Assets 1 12 12 12 12 Total Non-current Assets 1,483 1,707 2,106 3,043 3,581 Inventories 3,071 3,290 3,947 4,811 5,906 Debtors - - - - - Other Current Assets 317 431 510 614 744 Cash & Equivalents 536 773 756 290 342 Total Current Assets 3,924 4,493 5,213 5,716 6,992 Creditors 1,668 1,483 1,789 2,194 2,710 Other Current Liabilities & Provns 309 464 531 652 805 Total Current Liabilities 1,977 1,946 2,321 2,846 3,515 Net Current Assets 1,947 2,547 2,892 2,870 3,477 TOTAL APPLICATION OF FUNDS 3,430 4,254 4,998 5,913 7,058



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Cash Flow Statement Year End March (Rs mn) FY18 FY19 FY20E FY21E FY22E Reported PBT 1,125 993 1,045 1,295 1,618 Non-operating & EO Items 8 89 (51) (41) (22) Interest Expenses 15 16 37 23 27 Depreciation 222 268 323 438 562 Working Capital Change (346) (270) (362) (443) (556) Tax Paid (381) (332) (263) (326) (407) OPERATING CASH FLOW ( a ) 643 763 728 947 1,222 Capex (478) (407) (722) (1,375) (1,100) Free Cash Flow (FCF) 166 357 7 (429) 122 Investments 395 (339) 437 - - Non-operating Income (68) 12 51 41 22 INVESTING CASH FLOW ( b ) (151) (734) (234) (1,334) (1,077) Debt Issuance/(Repaid) (366) (19) (37) (23) (27) FCFE (201) 338 (31) (452) 95 Share Capital Issuance 9 19 - - - Dividend (27) (44) (37) (55) (65) Others - - - - - FINANCING CASH FLOW ( c ) (384) (44) (74) (78) (93) NET CASH FLOW (a+b+c) 109 (14) 420 (466) 52 EO Items, Others - - - - - Closing Cash & Equivalents 196 123 586 120 172


Key Ratios FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 32.1 32.3 32.2 32.2 32.2 EBITDA Margin 10.9 9.3 7.8 8.1 8.3 EBIT Margin 9.0 7.3 6.0 6.0 6.2 APAT Margin 6.4 5.0 4.5 4.6 4.6 RoE 25.2 18.9 17.5 18.3 19.1 RoIC (or Core RoCE) 29.4 21.5 20.0 19.4 19.7 RoCE 24.4 18.9 17.5 18.1 19.0 EFFICIENCY Tax Rate (%) 30.9 34.8 25.2 25.2 25.2 Fixed Asset Turnover (x) 6.8 6.4 5.8 4.9 4.8 Inventory (days) 92 84 83 83 82 Debtors (days) - - - - - Other Current Assets (days) 9 11 11 11 10 Payables (days) 50 38 38 38 38 Other Current Liab & Provns (days) 9 12 11 11 11 Cash Conversion Cycle (days) 42 45 45 44 44 Net D/E (x) (0.2) (0.1) (0.1) (0.0) (0.0) Interest Coverage (x) 71.9 65.3 27.7 55.4 59.5 PER SHARE DATA (Rs) EPS 42.9 39.5 43.2 53.6 66.9 CEPS 55.6 54.7 61.0 77.8 98.0 Dividend 2.00 1.70 2.50 3.00 3.50 Book Value 192.0 226.1 267.3 317.8 381.1 VALUATION P/E (x) 56.7 61.7 56.4 45.5 36.4 P/BV (x) 12.7 10.8 9.1 7.7 6.4 EV/EBITDA (x) 32.8 32.8 32.2 25.7 20.1 EV/Revenues (x) 3.6 3.0 2.5 2.1 1.7 OCF/EV (%) 1.5 1.8 1.7 2.2 2.8 FCF/EV (%) 0.4 0.8 0.0 (1.0) 0.3 FCFE/Mkt Cap (%) (0.5) 0.8 (0.1) (1.0) 0.2 Dividend Yield (%) 0.1 0.1 0.1 0.1 0.1



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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 9-Dec-19 1,692 BUY 2,150

30-Dec-19 1,639 BUY 2,150 12-Jan-20 1,663 BUY 2,150 8-Feb-20 2,280 BUY 2,500

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

Oct

-19

Nov-

19

Dec-

19

Jan-

20

Feb-

20

Vmart TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com


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Disclosure: We, Jay Gandhi, MBA & Rutvi Chokshi, CA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. 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