V2 Retail – Growth on Fast Track
V2 Retail (CMP: 402) is one of the fastest growing retail companies in India. The company operates 67 stores across Tier 2 and 3 cities in India. Many of you might have seen these stores in smaller cities. The company offers a portfolio of products including apparel and non-apparel (footwear, toys, handbags, fragrance, cosmetics, home furnishing, etc). The focus is on providing value and a good shopping experience to the lower middle class segment in smaller cities.
The company leases properties for stores in tier 2 and tier 3 cities to ensure low rental costs. The average ticket size (sale) is around 300 Rs which differentiates it from the higher end players like Reliance Trends, Westside, Maxx, etc. having higher ticket sizes. Also, the higher end players don’t have presence in many Tier 2 and 3 cities. It majorly competes with V-Mart and small unorganized players. The stores’ locations are planned in a way to ensure low transportation costs.
The company has a market cap of approx 1300 crores and trades at a P/E of 40 which is comfortable for a retail player. Some of its peers like V-Mart trades at a 70 P/E. The company has almost zero debt with Debt to Equity ratio at 0. The EBIDTA margin is around 9.8% which is good for a low cost retailer. Major financial institutions and ace investors like Goldman Sachs, India 2020 Fund, Lighthouse PE and Ashish Kacholia hold stakes in the company.
There has been a strong sales growth at a CAGR of 18% from 2014 till 2018. Profits have grown at a 26% CAGR from 2014 till date. The company has been expanding its footprint going from 10 stores to 67 stores in last 5 years. By the end of this fiscal, the company is targeting to increase the store count to 100. That would augment the revenues of the company by almost 30% and profits by 50%. This store expansion would be carried out utilizing the cash (90 crores INR) available with the company and the money being raised from the market. In the longer horizon, the company aims to have 1000 stores across India in the next 5 years. At present, the stock looks to be a good opportunity. The next 2 quarters are generally good for the company because of the festival season. One can look at this stock with a long term view of 4-5 years for multibagger returns with careful monitoring of its performance every quarter.
Disclaimer: I am not a SEBI registered analyst and not advising anyone to buy. The purpose of this article is to share my viewpoint about fundamentals and the future prospects of the company. So, please do not consider this as an investment tip. Talk to your financial advisor before taking any investing call.
Hi, I am Azhar, a management graduate from IIM Bangalore. I work as a manager in a FMCG firm. From college days, I had a lot of interest in equity markets. My passion for teaching led me to setup this site to educate retail investors about stock markets investments. Looking forward to learn and grow with you. Happy investing !!