Buy V-Mart Retail; target of Rs 3920: Motilal Oswal

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

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Motilal Oswal's research report on V-Mart Retail

V-Mart Retail (VMART)’s revenue was up 2.3x YoY, 61% below pre-COVID levels (1QFY20). This is closer to other retailers’ performances, as the second COVID wave has seen lower impact. EBITDA loss at INR20m recovered 67% YoY (6% miss). Given the expectation of swift recovery from the second COVID wave lockdowns by 3QFY22, we raise our FY23E revenue/EBITDA estimates by 7%, factoring in a revenue/EBITDA CAGR of 12%/14% over FY20–23E. The recent acquisition announcement of the “Unlimited” Value Retail chain and aggressive store additions in core markets should drive steady growth – which may be well-supported by a lean balance sheet, supported by the recent QIP. Maintain Buy.

Outlook

We assign a 23x FY23E EV/EBITDA multiple to arrive at our TP of INR3,920 (v/s INR3,880 earlier). Given the huge growth opportunity in the Value Fashion segment and V-Mart’s strong execution capability, it has the potential to garner 25–30% EBITDA/PAT growth sustainably for a prolonged period – backed by 20%+ revenue growth (SSSG + new store adds). Maintain Buy.

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