The industry was valued at over $1 trillion in 2023 and is set to grow at a compound annual growth rate (CAGR) of 10% by 2030.
The strong growth seen is driven by a confluence of factors including increased urbanisation and demand for organised and high-quality retail spaces.
In this fast-growing industry, value-retail chains such as Vishal Mega Mart, Avenue Supermarts (Dmart), and V-Mart Retail have grabbed headlines owing to their strong expansion plans.
But one company that’s gone unnoticed is V2 Retail.
About V2 Retail
Back in the 2000s, V2 Retail went by the name of Vishal Mega Mart, which recently concluded its IPO and made a solid listing.
V2 Retail was incorporated in 2001 by Ram Chandra Agrawal.
After coming out with its IPO in 2007, the company faced headwinds in the following years. Mounting debt, weak IT supply chain, and poor store locations ultimately made the company a loss-making entity.
The company’s promoters then sold their flagship Vishal brand in 2011 and restructured the entire business. In 2011, the promoters introduced the V2 Retail brand by opening the first store in Jharkhand.
At present, V2 Retail has more than 107 retail stores, which mainly sell fashion apparel for men, women and children along with lifestyle products.
The company’s presence is primarily concentrated in Uttar Pradesh, Bihar, Odisha, Jharkhand and Assam.
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It has tie-ups with prominent e-commerce players like Amazon and Myntra along with the launch of its e-commerce portal – V2kart – to diversify its sales channel. However, the revenue contribution from these has remained minimal in recent years.
Phenomenal performance in 2024
In terms of stock performance, V2 Retail has outperformed its peers by a big margin.
At the start of 2024, the stock was quoting at ₹300 per share.
By the end of 2024, the stock has rallied to ₹1,600 per share.
That’s a 4.4x rally in one year!
So, what explains the stellar performance by V2 Retail in the year gone by?
The company’s financial performance has significantly improved, driven by a steady increase in sales per square foot, culminating in a remarkable turnaround in FY24 with its highest-ever revenue.
Financial Snapshot
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This upbeat performance was followed by healthy earnings growth in the first quarter of FY25. It returned to losses in the second quarter but the performance for the first half of FY25 has improved if you compare it on a year-on-year basis.
V2 Retail’s revenue for the first half of FY25 stood at ₹8 billion, a growth of 61% compared to a year ago period.
The company’s net profit for the same period has reached ₹144 million compared to last year’s ₹5 million, that’s a stark improvement.
Apart from improvement in financials, the company also took the expansion route, similar to other retail chains, and added 22 new stores. This took its total store count to 139.
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During September 2024 quarter, V2 Retail added five additional stores, bringing the total tally to 144 stores.
The promoters of V2 Retail have vast experience in India’s retail sector, especially in the value segment of small-town India.
Promoter holding in the company stands at 54.3% as of September 2024.
V2 Retail outlook for 2025
Historically, the second quarter has been V2 Retail’s weakest due to business cyclicality, with losses reported for the past four years, including this year, albeit reduced.
However, a strong recovery is expected in Q3, buoyed by festive and wedding season demand, as the company plans to expand aggressively with 40 new stores in the second half of FY25.
Earlier, it had guided for 40 stores overall in FY25, but it has upped the guidance to 40 stores in the second half itself, having already opened 22 in the first half.
Beyond 2025, the company has multiple plans to take its revenue to ₹28 billion in the next two years.
The company closed FY24 with revenues of ₹11.5 billion and it’s expected to close FY25 with revenues of close to ₹18 billion.
The store target by the next two years is set at 250.
One of the company’s whole-time directors recently said in an interview that V2 Retail has bucked the ongoing industry-wide demand pressure as consumers continue to shift from the unorganised value segment to the organised segment.
Joining the bandwagon like other retailers, V2 Retail is also on the verge of launching its website. The website is expected to start from March 2025.
While all this looks rosy, the stock currently trades at abnormal valuations.
The company’s price to earnings (PE) multiple is 135x whereas the price to book value multiple is 19.5x.
Historically, the stock has commanded a PE multiple of 99x in the past 5 years.
Here’s a table showing V2 Retail’s valuations and other important ratios, compared to its peers.
Comparative Analysis
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The problem with these kinds of valuations is that they don’t leave any room for mistakes. If the expected growth doesn’t happen, or if V2 Retail’s profit margins take a hit, it could face a sharp correction.
That is why, investors should always conduct second order thinking and think about what’s the worst that could happen.
It remains to be seen whether V2 Retail is able to live up to the hype and meet its ambitious goals in the coming two years.
Conclusion
Growing population, rising disposable incomes, urbanisation, and availability of a wide variety of products under one roof is expected to drive the growth of V2 Retail in the medium term.
However, like Warren Buffet wrote in his 1995 letter to shareholders -
Retailing is a tough business. During my investment career, I have watched a large number of retailers enjoy terrific growth and superb returns on equity for a period, and then suddenly nosedive, often all the way into bankruptcy. This shooting-star phenomenon is far more common in retailing than it is in manufacturing or service businesses.
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In retail, staying ahead demands constant innovation, as competitors quickly replicate and outdo your moves while shoppers are lured by endless new options. In this fast-paced industry, complacency is not an option—it’s a recipe for failure.
The valuations of most retail stocks in India continue to display a gravity defying act.
It’s therefore important for investors to separate the wheat from the chaff and invest in only the stocks that offer some margin of safety.
Happy investing!
Disclaimer: This article is for education purposes only. It is not a recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
