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Turning Shopholic

VMART

Turning Shopholic

Sector: Retail

Sector view: Neutral

Sensex: 26,169

52 Week h/l (Rs): 652 / 429

Market cap (Rscr) : 809

6m Avg vol (‘000Nos): 987

Bloomberg code: VMART IN

BSE code: 534976

NSE code: VMART

FV (Rs): 10

Price as on December 01, 2015

Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

60

70

80

90

100

110

120

Oct‐14 May‐15 Nov‐15

VRL Sensex

Share holding pattern % Mar‐15 Jun‐15 Sep‐15

Promoters 58.1 57.6 57.7

Insti 29.5 29.9 30.1

Others 12.4 12.5 12.2

Rating: BUYTarget: Rs692

CMP: Rs448

Upside: 55%

Company Report

Research Analyst Ruchita Maheshwari

[email protected]

V Mart Retail Ltd

This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

December 01, 2015

Initiating Coverage

Turning Shopaholic!!!

V‐Mart Retail Ltd or VRL is a chain of value retail stores focused on apparel/non‐apparel fashion products. VRL operates through medium‐size standalone stores providing a ‘modern retail experience’ with a focus on the aspiring middle‐class in Tier II & III cities in India. Its positioning as a one‐stop family shop in Tier‐II & Tier‐III cities provides an early mover advantage with strong scalability in these high‐potential markets. Over the years, VRL has shifted its focus from the low margin Kirana (FMCG & staple packaged foods) segment to fashion products (~90% of FY15 revenues), which helped the company improve its gross margin. Despite strong revenue CAGR of 37.1%/35.3%/38% over the past 3/5/6 years, respectively, and better return ratios/cash flow, VRL trades at 11.6x/6.1x FY18E P/E and EV/EBITDA trades at a 33%‐65% discount to other retailers like SSL/TL/Raymond/Kewal Kiran/Page which trade at 18x‐36x P/E and 10x‐24x EV/EBITDA. Strong revenue/net profit CAGR of 23.4%/22.9%, respectively, coupled with a zero net D/E ratio and a 284bps improvement in RoCE at 21.3% over FY15‐FY18E would lead to a strong re‐rating. We have assigned Buy rating to VRL with a Target Price of Rs692 based on 18x/9.6x, FY18E P/E and EV/EBITDA, respectively, with an upside of 55%. Prudent control of overheads compared to its peers: VRL set‐up stores in direct competition with unorganized players and most of them are located in Tier‐II and Tier‐III cities. Hence, the company enjoys the lowest

rental of Rs34/sqft/month (as per AS19), which is 4.6% of sales, much lesser compared to 7.9%/9.4%/15.3% of TL/SSL/PFRL, respectively, on standalone basis. Employee costs are fairly lower at 6.8% compared to 7.5%/9.1%/9.5% and other expenses are at 7.2% compared to 12.4%/25.8%/12.8% of SSL/TL/PFRL, respectively. Not only overheads, VRL proves to be far superior even in the revenue/sqft, which stood at Rs9,500 compared to Rs8,075/Rs9,254 in case of SSL/PFRL, respectively. On account of low cost structure, the operating margin for VRL is 8.9% in FY15, which is the highest compared to 6.2%/4.0%/4.1% of SSL/TL/PFRL, respectively. Financial summary Y/E Mar (Rs cr) FY15 FY16E FY17E FY18E

Revenues 721 863 1,093 1,355

YoY Growth % 25.3 19.7 26.7 23.9

EBITDA 64 79 101 126

EBITDA (%) 8.9 9.2 9.3 9.3

PAT 37 40 55 69

YoY Growth % 48.2 7.4 36.6 26.4

EPS (Rs) 20.7 22.3 30.4 38.5

PE (x) 21.6 20.1 14.7 11.6

P/B (x) 3.9 3.3 2.8 2.3

EV/EBITDA (x) 12.7 10.1 7.7 6.1

D/E (x) 0.1 0.1 0.0 0.0

RoE (%) 19.9 17.9 20.5 21.3

RoCE (%) 18.5 17.2 20.2 21.3 Source: Company, India Infoline Research

V Mart Retail Ltd

2

Healthy cash flow will improve return ratios: In retail industry, inventory plays spoilsport. For any company to be in the top league, prudent inventory management is the key. Keeping the same in mind, VRL continuously focused on improving inventory turnover and supply chain. The company had reduced its inventory days from 150 in FY14 to 130 in FY15, which in turn improved the ex‐cash working capital cycle as a % of sales from 18.1% in FY14 to 15.3% in FY15. Hence, we expect ex‐cash working capital cycle to improve further to 14.2%/13.7%/13.5% in FY16E/FY17E/FY18E, respectively. VRL targets 25%-30% sustainable growth; largely funded internally: With a lean working capital requirement coupled with healthy revenue growth, VRL would have operating cash flow of Rs168.5cr over FY15‐

FY18E, which may meet entire capex need of Rs160cr to set up 70 stores over FY15‐FY18E. Hence, the company will be able to keep zero net D/E ratio and improve RoCE 284bps from 18.5% to 21.3% over FY15‐FY18E. As per management, the D/E will never at any given point of time exceed 0.75x. To continue to attain long term sustainable growth of 30%, VRL is continuously improving its supply chain management by building capabilities, consolidating warehouses and investing in its infrastructure with latest technologies to cater

to the existing 122 stores and future addition of 70 stores over FY15‐FY18E.

V Mart Retail Ltd

3

Valuation & Recommendation The company made its debut on the bourses on 20 February 2013 at a price of Rs216 per share, valuing the stock at 15.4x/7.3x FY14 PE and EV/EBITDA, respectively. VRL grew its revenue CAGR by 37.1%/35.3%/38.0%, respectively and EBITDA CAGR by 27.9%/34.8%/40.2%, respectively, over the past three/five/six years. We believe VRL stock at 12.1x/6.4x FY18E P/E and EV/EBITDA trades at a 33%‐65% discount to other retailers like SSL/TL/Raymond/Kewal Kiran/Page which trade at 18x‐36x P/E and 10x‐24x EV/EBITDA. VRL is one of the most efficient players in the Indian retail industry with a lean cost structure. VRL is among very few retail companies that have adopted a successful business model and registers healthy growth along with strong cash flow/return ratios and profitability. The company has positioned itself as a one‐stop shop solution for the entire family with an added focus on youth and young families in Tier‐II and Tier‐III cities. We believe, with the right business model, the company had an early mover advantage with a strong store execution and scalability in these high potential markets, where growing fashion conscious consumers are shifting to more brand and organized buying. VRL had proved its execution capabilities by setting up close to 122 stores till November 2015 opening an average of 17‐20 stores every year. The company guided to open 20‐25 stores in the next three years. With aggressive focus on improving inventory turnover and supply chain, working capital requirement is expected to reduce from 15.3% to 13.5% over FY15‐FY18E, thereby generating a healthy operating cash flow of Rs168.5cr, which will meet its entire capex

requirement of Rs160cr to set up 70 stores over FY1‐FY1E. In addition, zero net D/E ratio in FY15 will support aggressive growth in the long run without any need for equity dilution. Hence, the company will be able to maintain net debt free status and improve RoCE 284bps from 18.5% to 21.3% over FY15‐FY18E. As per management, the D/E will never at any given point of time exceed 0.75x. To continue to attain long term sustainable growth of 30%, VRL is continuously improving its supply chain management by building capabilities, consolidation of warehouse is completed in January 2015 and investing in its infrastructure with latest technologies, to cater to the existing

122 stores and future addition of 70 stores over FY15‐FY18E. Following the strength in VRL’s business model and its strong financial franchise, we expect it to trade at a premium to retail peers like SSL, TL, and PFRL. Strong revenue/net profit CAGR of 23.4%/22.9%, respectively, coupled with a zero net D/E ratio and a 284bps improvement in RoCE at 21.3% over FY15‐FY18E would lead to a strong re‐rating. We have assigned Buy rating to VRL with a TP of Rs692 based on 18x/9.6x, FY18E P/E and EV/EBITDA, respectively, with an upside of 53%.

V Mart Retail Ltd

4

Comparative analysis

Company Name

Mkt Cap Net Sales EBITDA % CAGR (FY15‐FY18E) % PE

(Rs Bn) FY15 FY15 FY16E FY17E FY18E Sales EBITDA PAT FY15 FY16E FY17E FY18EV Mart (VRL)* 8.2 7.2 8.9 9.2 9.3 9.3 23.4 25.1 22.9

21.5

20.0

14.6

11.6

Raymond 25.5 53.3 8.0 8.4 9.2 9.9 10.1 18.2 29.1 22.6 24.7 15.3 10.5

Kewal Kiran 23.8 4.1 23.8 24.8 25.8 24.4 17.0 17.9 17.7 35.9 31.2 23.3 22.0

Shoppers Stop 32.4 42.8 6.4 4.8 5.6 6.6 11.8 13.0 38.5 76.3 144.7 47.4 29.4

Page Ind 145.0 15.1 21.1 21.2 21.4 22.0 22.3 24.1 25.9 74.0 58.5 45.2 36.0

Trent 52.5 22.8 3.3 6.6 8.3 8.9 23.6 71.8 31.0 40.6 47.7 26.9 18.1

Vardhman Textile 50.3 67.9 16.5 19.9 20.4 20.2 4.8 12.1 22.4 12.3 8.8 7.3 6.8

Welspun Ind 88.8 4.1 25.4 25.3 25.0 24.2 15.7 13.8 20.0 16.4 13.6 11.5 9.5Source: Bloomberg, India Infoline Research, *IIFL estimate, Price as on 1st December 2015

Company Name

EV/EBITDA P/B RoE %

FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E

V Mart (VRL)* 12.6 10.0 7.7 6.1

3.9

3.3

2.7

2.2 19.9 17.9 20.5 21.3

Raymond 9.5 8.4 6.8 5.6 1.8 1.5 1.4 1.3 7.5 6.7 9.8 13.3

Kewal Kiran 26.4 20.3 16.8 14.6 8.2 6.9 5.9 5.8 21.7 22.5 27.0 25.9

Shoppers Stop 14.7 17.2 13.0 10.2 6.5 5.9 5.3 4.5 8.3 4.5 10.9 16.8

Page Ind 40.7 37.4 29.6 23.8 39.6 28.5 21.9 16.3 58.0 53.7 52.4 49.5

Trent 69.0 30.6 18.6 13.5 3.4 1.3 1.1 N/A 10.7 8.0 12.0 16.0

Vardhman Textile 4.2 4.3 3.9 3.6 1.0 1.3 1.1 1.0 12.3 15.5 16.1 15.8

Welspun Ind 7.7 7.3 6.4 5.6 2.5 4.6 3.5 2.8 42.5 37.7 34.3 33.8 Source: Bloomberg, India Infoline Research *IIFL estimate, Price as on 1st December 2015

V Mart Retail Ltd

5

One year forward PE Band PE median Band

50

150

250

350

450

550

650

750

Mar‐13

Apr‐13

Jun‐13

Jul‐13

Sep‐13

Nov‐13

Dec‐13

Feb‐14

Apr‐14

May‐14

Jul‐14

Sep‐14

Oct‐14

Dec‐14

Jan‐15

Mar‐15

May‐15

Jun‐15

Aug‐15

Oct‐15

Nov‐15

(Rs)

14x

23x

26x

20x

11x

17x

6

8

10

12

14

16

18

20

22

24

26

28

Mar‐13

Apr‐13

Jun‐13

Jul‐13

Sep‐13

Nov‐13

Dec‐13

Feb‐14

Apr‐14

May‐14

Jul‐14

Sep‐14

Oct‐14

Dec‐14

Jan‐15

Mar‐15

May‐15

Jun‐15

Aug‐15

Oct‐15

Nov‐15

(x)

Median 16.9

Source: Company, India Infoline Research One year forward EV/EBITDA Band EV/EBITDA median band

2

4

6

8

10

12

14

Mar‐13

Apr‐13

Jun‐13

Jul‐13

Sep‐13

Nov‐13

Dec‐13

Feb‐14

Apr‐14

May‐14

Jul‐14

Sep‐14

Oct‐14

Dec‐14

Jan‐15

Mar‐15

May‐15

Jun‐15

Aug‐15

Oct‐15

Nov‐15

(Rsbn)

14x

6x

12x

8x

10x

0

2

4

6

8

10

12

14Mar‐13

Apr‐13

Jun‐13

Jul‐13

Sep‐13

Nov‐13

Dec‐13

Feb‐14

Apr‐14

May‐14

Jul‐14

Sep‐14

Oct‐14

Dec‐14

Jan‐15

Mar‐15

May‐15

Jun‐15

Aug‐15

Oct‐15

Nov‐15

(x)

Median 9.2

Source: Company, India Infoline Research

One year forward P/B Band P/B median Band

(50)

50

150

250

350

450

550

650

750

Mar‐13

Apr‐13

Jun‐13

Jul‐13

Sep‐13

Nov‐13

Dec‐13

Feb‐14

Apr‐14

May‐14

Jul‐14

Sep‐14

Oct‐14

Dec‐14

Jan‐15

Mar‐15

May‐15

Jun‐15

Aug‐15

Oct‐15

Nov‐15

(Rs)

4x

1x

2x

5x

3x

0

1

2

3

4

5

Mar‐13

Apr‐13

Jun‐13

Jul‐13

Sep‐13

Nov‐13

Dec‐13

Feb‐14

Apr‐14

May‐14

Jul‐14

Sep‐14

Oct‐14

Dec‐14

Jan‐15

Mar‐15

May‐15

Jun‐15

Aug‐15

Oct‐15

Nov‐15

(x)

Median 3.0


V Mart Retail Ltd

6

Investment Rationale Prudent control on overheads compared to its peers We believe VRL is one of most efficient players in Indian retail Industry. Its cost structure, whether it is lease rentals, employee costs or other costs, is one of the lowest in the industry. As most of VRL’s stores are located in Tier‐II and Tier‐III cities, its lease rentals are lower at Rs34/sqft/month compared to Indian peers who generally operate in metro and Tier‐I cities. VRL’s lease rentals are at 4.6% of sales, compared to 7.9% of Trent or TL, 9.4% of Shoppers Stop or SSL and 15.3% of Pantaloon Future Retail or PFRL on a standalone basis. Besides the location advantage, VRL has signed long‐term lease agreements for 9‐12 years with escalation costs of 10%‐12% every three years. Similarly, its employee costs at 6.8% of sales are lower than 7.5%/9.1%/9.5% of SSL/TL/PFRL respectively and, other costs at 7.2% are also lower compared to 12.4%/25.8%/12.8% of SSL/TL/PFRL respectively. Despite the focus on Tier‐II and III cities, its revenue/sqft is higher at Rs9,500 compared to Rs8,075 of SSL and Rs9,254 of PFRL. As VRL is focusing on volume with low ticket‐size items, its gross margin at 29.5% is lower than 38.3%/49.8%/45.9% of SSL/TL/PFRL, respectively.

Despite a lower gross margin, VRL has higher EBITDA margin of 9% compared to peers. Lower lease rentals, employee costs and lower other expenses help VRL in reporting higher EBITDA margin. On account of its low‐cost structure, even in a challenging environment of FY15, VRL enjoyed highest operating margin of 8.9% compared to 6.2%/4.0%/4.1%of SSL/TL/PFRL, respectively.

Lean lease rental cost of VRL Compared to peers, VRL has lowest lease rental cost

3026

28 28 28

32 3435

3941

(13.6)

10.8

(0.1)(1.8)

16.2

5.6

2.4

11.2

6.9

(14)

(11)

(8)

(5)

(2)

1

4

7

10

13

16

‐5

5

15

25

35

45

55

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

Monthly lease rent (Rs/sqft) Growth (%)

(Rs/sqft)(%)

6.6 6.9

5.5 4.9

4.4 4.3 4.6

9.4 10.3

9.8 9.2 9.3 9.6 9.4 9.4

3.2

5.6 5.7

5.9 6.8

6.8

8.3 7.9

12.7

15.1 15.3

0

2

4

6

8

10

12

14

16

18

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

(%)VRL SSL TL PFRL


V Mart Retail Ltd

7

Cluster-based approach optimizes inventory effectively To have an effective control over inventory (manage at the store level and not allow it to escalate) is a dream for any retail company.

VRL follows a cluster‐based approach in setting up a store i.e. opening of a new store within a radius of 100km‐150km from its existing store. The logic behind following a cluster‐based approach is to be aware of and service the local customer preferences better. This cluster‐based approach helps the company in rotation of their inventory (out‐of‐stock) in inter‐store stock movement. As the company deals entirely in Tier‐II and Tier‐III cities, VRL easily rotates out‐of fashion stock within the vicinity of nearby stores as semi‐urban areas tend to catch up with the changing fashion trend at a slower pace compared to the Tier‐I cities. If we gauge the retailers in metro and Tier‐I cities, they face the heat in rotation of their stock which leads to high inventory risk.

In addition, the cluster‐based approach helps in building brand with a strong regional recall, understanding of regional fashion trends, higher inventory churn, less dead stock, maximised regional advertisement spending and better human resource management.

…And highest revenue/sqft compared to its peers Hence, Compared to peers, VRL has highest EBITDA%


Gross margin of VRL is lowest… …But VRL has lowest cost structure (FY15)

34.734.3 32.6

29.4 29.8 30.5 29.8 29.5

11.7

36.1 36.7 37.537.3

37.6 37.7

38.3

47.850.6

54.050.6

45.7 47.7 46.649.8

39.7 42.7

0

10

20

30

40

50

60


(%)

Gross margin‐VRL Gross margin‐SSL

Gross margin‐TL Gross margin‐PFRL

6.8 7.5 9.1 9.94.6

9.4 7.915.3

2.0 2.8 3.0

3.9

7.2

12.425.8 12.8

70.562

50 54.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

VRL SSL TL PFRL

Employee cost Lease rent A&P Others Raw material


V Mart Retail Ltd

8

Reduction in inventory because of shoplifting, theft by employees, organised retail crime, administrative errors, write‐off of dead stock and supplier fraud are all known as shrinkage. It is accounted under ‘cost of goods sold’. VRL’s stringent policy on inventory quality led to a rise in shrinkage, as a percentage of sales, in recent years. Shrinkage ratio increased to 1.28% in Q2FY16 as against 0.88%/1.2% in Q2FY15 and Q1FY16, respectively up 40bps/8bps YoY/QoQ, respectively. With better management of inventory at store levels, the shrinkage ratio is expected to be lower going forward.

Shrinkage ratio to decline from FY16E onwards

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(%)


Healthy cash flow will improve return ratios In a retail industry, the inventory plays a spoilsport. For any company to be in the top league, prudent inventory management plays a key role. Keeping this in mind, VRL had continuously focused on improving inventory turnover and supply chain. The company had reduced its inventory days from 150 in FY14 to 130 in FY15, which in turn improved the ex‐cash working capital cycle from 18.1% in FY14 to 15.3% in FY15. We expect ex‐cash working capital cycle to improve further to 14.2%/13.7%/13.5% in FY16E/FY17E/FY18E, respectively.

Improving Working Capital as a % of sales Improving Working Capital Efficiency

22

42 4253 57

77

104 111123

150

183

22.4

29.3 29.2

24.8

20.420.1

18.1

15.314.2 13.7 13.5

12

14

16

18

20

22

24

26

28

30

32

0

20

40

60

80

100

120

140

160

180

200

220

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(%)(Rscr)

Working capital ex‐cash WC as % sales (RHS)

142 157154

126

110 111 105

89 86 84 83

195

190

198 169158

150 150

130 130 128 127

54

3344 43 48

39 44 41 44 44 44

0

20

40

60

80

100

120

140

160

180

200

220

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16EFY17EFY18E

(days)

Working capital days Inventory days

Creditor days


V Mart Retail Ltd

9

The company opens new store with a total area of around 8,000 sqft and incurs capex of about Rs1,400‐Rs1,450/sqft. The capex for the store stands at Rs1‐1.5cr and the inventory costs around Rs1‐1.5cr. Hence, company requires a capex of Rs2‐3cr to open one store. For 20‐25 stores each for the next three

years, the company requires a capex of Rs160cr. We expect the company will do an operating cash flow of Rs168.5cr over a period of FY15‐FY18E, which we believe will be sufficient to take care of the expansion going forward without taking any additional debt. Hence, despite aggressive store addition, we expect the company to be net debt‐free from FY17E onwards. However, as per management, at any given point of time, the D/E will not exceed 0.75x. VRL’s RoCE is suppressed currently on account of Rs21.8cr deployed in liquid investments out of Rs84.2cr raised from the IPO. We expect these liquid investments to be utilised for meeting future capex. As a result, capital employed is expected to grow by a mere 14.9% against EBIT CAGR of 18.9% over FY15‐FY18E. This is expected to result in a 284bps improvement in RoCE ‐ from 18.5% to 21.3% over FY15‐FY18E ‐ leading to a strong re‐rating of VRL.

Healthy net cash from operation Continues to maintain lean net D/E ratio

(9)

(16)

6

(0)

12

6 7

37

49 53

67

(20)

(10)

0

10

20

30

40

50

60

70

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(Rscr)

18

27 27

36 38

(21)

7 5

(7)

(23)

(33)

0.0

1.5

0.8 0.7 0.8

0.7

(0.1)

0.0 0.0 (0.0)

(0.1)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

(45)

(35)

(25)

(15)

(5)

5

15

25

35

45

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(x)(Rscr)

Net debt Net D/E ratio


Improving Return Ratios Higher EBIT growth v/s Capital employed growth

6.27.7

12.9

17.0

15.514.6

18.517.2

20.221.3

4.46.4

15.4

21.4

17.5

15.9

19.9

17.9

20.521.3

4

6

8

10

12

14

16

18

20

22

24

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

RoCE RoE RoIC

(%)

53.1

89.2

54.1

40.9 35.9 38.8

3.2

30.8

24.6

3.3

23.9

15.5

93.8

16.9

10.1

9.2 13.9

22.2

0

10

20

30

40

50

60

70

80

90

100

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

(%)

EBIT growth Capital employed growth


V Mart Retail Ltd

10

More than 1,200 active vendors provide quality products at reasonable cost The company ,with its deep pockets compared to unorganized players, has developed relationship with more than 1,200 dedicated vendors and suppliers

(2,500 including FMCG vendors) for supply of apparels, general fashion merchandise goods and raw‐materials. This helps the company in procuring products from the region of its manufacturing, which helps in adding good quality products at reasonable costs. For instance, the company sources hosiery and hosiery‐based apparel from Tirupur, cotton apparel from Ahmedabad, denim from Delhi, kids‐wear from Kolkata, knitting from Ludhiana, the latest fashion trends from Mumbai and plastics products from Daman among other places in India. While apparel and accessories are procured centrally to be warehoused at NCR for quality control purpose, FMCG products are procured from distributors of major FMCG companies. Further, the company also engages job work entities to manufacture apparel with pre‐defined requirements with the going trend. Job works gives an added advantage to VRL in terms of quality products and pricing. Healthy same-store sales growth from FY16 onwards The company is targeting Tier‐II and Tier‐III cities with limited access or no access to malls, where the consumers are dependent on the unorganized players with no basic shopping experience. The VRL stores at these places provide a modern shopping experience (air conditioner, toilets, changing rooms, 24 hours electricity, etc), which helped in garnering higher customer mindshare and footfall. This has also acted as a barrier for smaller/local players as the cost of setting up similar outlets is relatively prohibitive. In addition, the shops run by local people in small towns are open for a limited number of hours (generally closed in the afternoon), and also have weekly off. VRL, on the other hand provides a shopping mall experience in these smaller towns which are open 13 hours a day, seven days of the week, 365 days of the year. Further, with the rise in usage of plastic money, the acceptance of credit/debit card and shopping vouchers in VRL stores provides customer delight which is missing in the small shops owned by local players. Over the past eight years (FY08‐FY15), the company has been able to grow its income per store at a CAGR of 7.3% to Rs7.3cr. However, SSG (same store sales growth) has been more than 10% in FY13 and FY14. The company achieved SSG (stores operating for more than one year) of 14.0% in FY13 and 11.5% in FY14. The key reason for the dip in SSG in FY14 was the change in strategy. The company noticed that customers were ready to pay a higher price if offered high‐quality goods. Based on this, its strategy witnessed a shift toward high‐value items. This is visible from the increase in average ticket size by 17.8%/8.6% in FY14/FY15, respectively. This shift led to an initial dip in volume, which is expected to bear fruit in terms of an uptick going forward. As it gains more popularity, this growth is expected to continue in the future as well. As modern shopping outlet is a new concept in small towns, barring FY15/FY16E, 6.5%/4.5%, respectively due to weak consumer sentiment, we expect VRL to grow in SSG terms at 8%/9% in FY17E and FY18E, respectively.

V Mart Retail Ltd

11

VRL to post healthy SSG from FY16

5.3

‐15.7

‐28.8

10.27.0

14.011.5

6.54.5

8.0 9.0

‐35

‐30

‐25

‐20

‐15

‐10

‐5

0

5

10

15

20

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

(%)


Strong execution capability led lower number of store closure The company enjoys a strong execution capability and has been expanding its store network at a consistent pace. The company has grown its store strength from 22 in FY08 to 108 in FY15 with total retail space increasing from 0.211mn sqft to 0.88mn sqft during the same period. VRL at the end of Q2FY16 has a strong presence in Uttar Pradesh, Uttarakhand, Bihar and Jharkhand with total 84 stores. It also has a significant presence in the northern states of Delhi, Punjab, Haryana and Rajasthan with a total 12 stores. VRL plans to continue its expansion into other nearby territories besides growing in the states where it already has a presence. The capex for opening one store in Tier‐II and Tier‐III cities ranges from Rs1,400‐Rs1,450 per sqft as against Rs4,000 per sqft in Tier‐I cities, where all the big players like Pantaloon, Shoppers Stop, etc are present. The company follows similar pricing strategies across stores, has barcodes on its entire product range and runs centrally‐controlled schemes and promotions. It also provides warranty and exchange policies as well as customer care helpdesks. VRL adheres to a strict policy on store level profitability. Any store falling short of profitability parameters is put under a rehabilitation program for 18 months. It takes only two months to break‐even for a new store at a variable level. Generally, a store matures in five years and after that the management modifies its interior decor to improve SSG. If any store is not profitable for more than 18 months, it is shut. VRL has shut 19 stores in all From FY08‐FY15, this signifies VRL’s execution capability and the right model to turn store profitable. It indicates VRL’s ability to keep store closure under check. With a lower number of store closure and low requirement of capex per sqft, there is a reduction in capex burden on the balance sheet. The company plans to add 25 new stores each year over the next three years and we expect new stores to drive future revenue growth.

V Mart Retail Ltd

12

VRL with a first mover advantage and proven business model in retailing in the Tier II & III cities is confident of growing its revenues and profits by 30% annually over the next 2‐3 years. VRL is present in 90 plus locations and each one have the potential to accommodate multiple stores. In any market, VRL does not have more than 2% share, which implies significant potential to scale up. Rise in apparel business contribution, without impacting footfalls, to drive margins VRL deals in three business verticals – apparel, general merchandise (non‐apparel and home mart) and kirana bazaar (grocery). The company’s business model comprises purchase of merchandise (apparel and non‐apparel) from indigenous suppliers, coupled with onward distribution through a centralized distribution center. The idea behind opening of stores with kirana bazaar was to increase footfalls as frequency of purchases at kirana bazaar is much higher than the frequency of purchases at apparel outlets, which would be converted into buyers of apparel. With this motto in mind, the company was allocating a portion of its retail outlet (~10% of retail space) for kirana bazaar to drive footfalls, despite the fact that gross margin in kirana bazaar is very low compared to apparel business.

Lower number of Store closure Total Stores & Growth %

2

6

3

1

23

2 3 3

3

9.1

16.2

7.5

2.2

3.6 4.4

2.2 2.8

2.4 2.0

0

2

4

6

8

10

12

14

16

18

0

1

2

3

4

5

6

7

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

(%)(no.)

Store closure As % of last year store (RHS)

22 37 40 45

55 68

89

108

125

147

169 68.2

8.1 12.522.2

23.630.9

21.315.717.6 15.0

0

10

20

30

40

50

60

70

80

‐

20

40

60

80

100

120

140

160

180

200

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(%)Total Stores Growth %


Healthy retail space addition Strong Footfall, Transaction & Conversion per day

211 315 333

365 456

558

726 880

1,016

1,192

1,368

48.7

5.79.9

24.8

22.430.1

21.2

15.5

17.3

14.8

0

10

20

30

40

50

60

‐

200

400

600

800

1,000

1,200

1,400

1,600

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

('000 sq.ft.)Total Retail Space Growth (RHS)

(%)

544 423 405 489 501 534 524 523

467

485382 400 436

489576

62559.4

64.265.7

69.270.0

68.6

65.8

64.7

54

56

58

60

62

64

66

68

70

72

‐

100

200

300

400

500

600

700


(%)

Footfall/store/day Transaction size/store/day

Conversion rate (RHS)Nos


V Mart Retail Ltd

13

Gross margins in apparel and non‐apparel businesses 34% each, 2.5x the gross margin of kirana business at 13%. The share of kirana bazaar business increased from 19.4% in FY08 to 29.4% in FY11 which led to a reduction in gross margin from 32.8% to 28.1% over the same period. Higher footfall partially compensated for lower gross margin in kirana bazaar business.

The company has fairly established its brand in its existing geographies, and hence has stopped setting‐up new stores with Kirana items since April 2012. Out of current 122 stores, 34 stores only exist with Kirana items. The company has since been increasing focus in the fashion‐related products (apparel and non‐apparel including footwear, purses, etc) which in turn will improve the overall Gross margin for the company. The company has strategically increased the contribution of fashion segment to 90.6% in FY15 from 80.7%/87.8% in FY13/FY14, respectively, and that of Kirana reduced to 9.4% in FY15 from 19.3%/12.2% in FY13/FY14, respectively, in total revenue.

We expect the apparel store contribution to revenue to increase from 90.6% in FY15 to 91.4%/92.6%/93.4% in FY16E/FY17E/FY18E, respectively and, consequently, the contribution of kirana bazaar business to fall from 9.4% in FY15 to 8.6%/7.4%/6.6% in FY16E/FY17E/FY18E, respectively, which is expected to improve gross margin and thereby support overall profitability in an environment of high costs because of substantial ramp‐up at new outlets.

Healthy increase in the average ticket size of the product

467 485

382 400436

489

576

625

3.7

(21.2)

4.6

9.2

12.1 17.8

8.6

(24)

(20)

(16)

(12)

(8)

(4)

0

4

8

12

16

20

0

100

200

300

400

500

600

700


(%)(Rs) Average ticket size Growth %


With higher fashion contribution, gross margin to improve

Average sales per sqft to improve going forward

80.6 78.770.4 70.6

75.980.7

87.7 90.6 91.4 92.5 93.4

19.4 21.329.6

29.4 24.1 19.3 12.1 9.3 8.6 7.4 6.6

34.7 34.3

32.6

29.4 29.830.5

29.829.5

29.9 30.330.3

26

27

28

29

30

31

32

33

34

35

36

0

20

40

60

80

100

120

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(%)Fashion Kirana Gross margin (RHS)

(%)

5,605

5,424

4,388 6,069

6,768

7,904

8,878

9,500

9,975

10,773

11,634

(3.2)

(19.1)

38.3

11.5 16.8

12.3 7.0 5.0

8.0 8.0

(30)

(20)

(10)

0

10

20

30

40

50

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

FY16E

FY17E

FY18E

Average Sales/sq.ft./year (Rs) Growth %

(Rs) (%)


V Mart Retail Ltd

14

Investment in back-end technology to support growth VRL has consolidated all its warehouses at Bilaspur, Haryana. It enables VRL to leverage use of technology effectively in its focus on reduction in inventory days, improving the quality of inventory, supply chain and warehouse management. The company has already installed vendor portal system. This system helps vendor in keeping a track on the performance of their products compared to the competitors, which in turn helps in projecting demand in accordance with the latest trends of the products. Further, VRL also updates real‐time inventory, which helps in managing supply chain effectively. To enhance the efficiency, the company is implementing warehouse management software or WMS for better stock replenishment. The company is also building further capabilities at the back end level. It is trying to develop a technology‐oriented system and had roped in global consultancy firm Gartner as its technology partner recently. VRL believes that analytics will play a major role in improving capabilities and thereby help cut costs, improve scalability/capability and improve individual systems including e‐commerce. E-commerce not yet a threat; nevertheless VRL exploring it as well VRL focus on Tier‐II and Tier‐III cities with a different business model compared to its peers that are facing heat from the increased presence of online retailers. As per management, the current penetration of online sales is limited to standardized products only like electronics, mobiles, etc. However, the company is exploring the online retailing and expects to foray in this field (once the company is able to strengthen its back‐end team and warehouse), and is expected to become operational in FY17E. Emergence of organized retailing in smaller town; the next big thing The Indian retail industry is one of the fastest growing in the world. Retail industry in India is expected to grow to US$1.3tn by 2020, witnessing a CAGR of 16.7% over 2015‐20. India is the fifth largest preferred retail destination globally. The country is among the highest in the world in terms of per capita retail store availability. India’s retail sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but also in Tier‐II and Tier‐III cities. Healthy economic growth, changing demographic profile, increasing disposable incomes, urbanisation, changing consumer tastes and preferences are the other factors driving growth in the organised retail market in India. India’s population is taking to online retail in a big way. The online retail market is expected to grow from US$6bn to US$70bn during FY15‐FY20. Increasing participation from foreign and private players has given a boost to Indian retail industry. India’s price competitiveness attracts large retail players to use it as a sourcing base. Global retailers such as Walmart, GAP, Tesco and JC Penney are increasing their sourcing from India and are moving from third‐party buying offices to establishing their own wholly‐owned/wholly‐managed sourcing and buying offices.

V Mart Retail Ltd

15

The Government of India has introduced reforms to attract FDI in retail industry. The government has approved 51% FDI in multi‐brand retail and increased FDI limit to 100% (from 51%) in single brand retail.

Organized retail penetration 2015

8%

92%

Organized retail penetration

Unorganized retail penetration


Drivers of organized retail Demand Drivers Supply Drivers

Rising income levels New Entrants

Increased urbanization Expansion plans of existing players

Growing aspiration levels and appetite to experiment

Infrastructure addition

Credit availability Emergence of new categories

Source: IBEF, India Infoline Research

Financial Analysis

Revenue expected to witness a 23.4% CAGR over FY15‐FY18E With a strategically laid business model to suit the needs of Tier‐II and Tier‐III cities, the company had been able to establish a successful business model. From here‐on, the company needs to channelize its efforts to scale up the business to the next level. With a proven execution capability and supply chain, the company is targeting to set‐up 20‐25 new stores every year for the next three years from an average 18 stores for the past four years. We expect VRL to grow its retail space at a 17.4% CAGR over FY15‐FY18E at 1.4mn sqft by

opening 70 stores on a base of 108 stores in FY15. The company had done SSG of 6.5% in FY15 and 8.7% in Q1FY16 and (2%) in Q2FY16 compared to 3.5% in Q2FY15 because of no impact of puja sales unlike 7days of puja sales in Q2FY15 plus “Adhikmas” of one month, also fell in Q2FY16 which is considered an inauspicious day for new purchase. Despite full Diwali sales benefit in Q3FY16, the SSG we expect to be in the range of 3%‐4% due to the delayed winter season as most of the winter sales is done in December month itself. We expect the company to do SSG of 4.5% in FY16E and 8%/9% in FY17E/FY18E, respectively. As a result, we expect revenue to grow at CAGR of 23.4% to Rs1,355cr over FY15‐FY18E.

V Mart Retail Ltd

16

Revenue to witness a CAGR of 23.4% over FY15‐FY18E

142 144 215

282 383

575 721

863

1,093

1,355

45.2

1.3

49.0

31.2

36.0

49.9

25.3

19.7

26.7

23.9

0

10

20

30

40

50

60

0

200

400

600

800

1,000

1,200

1,400

1,600

FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Net Revenue Growth %

(Rscr) (%)


Higher fashion contribution to improve Gross margin, but EBITDA margin to remain at constant level VRL grew its EBITDA by 27.9%/34.8%/40.2% over the past three/five/six years, respectively, at Rs64.1cr in FY15 and PAT rose by 45.6%/56.3%/74.3% CAGR, respectively, at Rs37.4cr over the same period. However, temporary hiccups were primarily witnessed in FY09 and FY10 because of aggressive expansion coupled with unexpected demand deterioration. Revenue per sqft declined 3.2%/19.1% in FY09/FY10, respectively. Following higher employee costs and higher overheads, EBITDA declined 10.4% despite a growth in net revenue by 45.2% in FY09. With corrective measures, the company was able to improve operating margin from 5.7% in FY09 to 8.2%/9.0% in FY10/FY11, respectively, despite sales growth of a mere 1.3% in FY10 because of shutdown of six stores as against an average of two stores, which was the highest in the company’s history. However, VRL continues to grow at a rapid pace after the blip in FY09 and FY10. To increase the footfall in the VRL stores, the company had opened stores with kirana business which had low gross margin of 21% compared to 33% and 37% for apparel and non‐apparel, respectively. Share of kirana business increased from 19.4% in FY08 to 29.4% in FY11, which led to reduction in gross margin from 32.8% to 28.1% over the same period. The higher footfalls partially compensated the lower gross margin. As the company had established its business model, the company stopped opening new stores with kirana business since April 2012. Currently, out of 122 stores, 34 stores have kirana business. VRL’s key objective is profitable growth with major focus on non‐kirana business (apparel and non‐apparel, including footwear, purses, etc).

V Mart Retail Ltd

17

VRL had successfully opened new stores without kirana business without compromising in the footfalls, which gives us fairly confidence in the scalability of business model. The contribution of fashion segment increased from 80.7% in FY13 to 87.8%/90.6%/92.1%/90.1% in FY14/FY15/Q1FY16/Q2FY16, respectively, and that of kirana segment declined from 19.3% in FY13 to 12.2%/9.3%/7.9%/9.9% in FY14/FY15/Q1FY16/Q2FY16, respectively. We expect apparel business contribution to increase from 90.6% in FY15 to 91.4%/92.6%/93.4% in FY16E/FY17E/FY18E, respectively and consecutively, the contribution of kirana business to fall from 9.3% in FY15 to 8.6%/7.4%/6.6% in FY16E/FY17E/FY18E, respectively, which is expected to improve gross margin by 77bps at 30.3% over FY15‐FY18E. Despite gross margin improvement, we expects VRL to do EBITDA margin at a constant level of 9.3% over FY15‐FY18E because of the increase in initial cost of operations arising from the ramp‐up of 20‐25 store additions every year which is expected to nullify the benefit arising from gross margin improvement. With a healthy revenue growth of 23.4% and stable margins, EBITDA is expected to post a 25.1% CAGR at Rs125.5cr over FY15‐FY18E. We expect VRL to improve its net working capital cycle despite store addition, leading to a decline in the working capital cycle from 15.3% in FY15 to 14.2%/13.7%/13.5% in FY16E/FY17E/FY18E, respectively. On account of high working capital cycle, operating cash flow was negative for three years out of the past eight years, with cumulative operating cash flow of only Rs44.1cr from FY08‐FY15. With effective management of working capital cycle (consolidation of warehouse at one place helped in reducing inventory days from 150 in FY14 to 130 in FY15), the company had been able to report positive operating cash flow of Rs37.2cr and also free cash flow turned positive to Rs4.8cr in FY15 from the cumulative negative of Rs74.5cr over FY11‐FY14. However, with lower working capital coupled with healthy revenue growth rate, VRL will have positive operating and free cash flow for all years in FY15‐FY18E with cumulative operating cash flow of Rs168.5cr and free cash flow

of Rs57.5cr, thereby meeting its entire capex requirement of Rs160cr to set up 70 stores over FY15‐FY18E. Hence, despite aggressive growth, we expect VRL to remain net debt free effectively from FY17E. Following control over interest costs, net profit is likely to grow at 22.9% CAGR. Healthy growth in net profit along with a 284bps improvement in RoCE over FY15‐FY18E is expected to result in a strong re‐rating of VRL.

V Mart Retail Ltd

18

A

With higher fashion contribution, gross margin to improve

With prudent overheads, EBITDA margin to maintain

34 49 4763

84117

172

213258

331

41134.7 34.3

32.629.429.8 30.5

29.8

29.529.930.3 30.3

‐4

1

6

11

16

21

26

31

36

41

0

50

100

150

200

250

300

350

400

450

500

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

Gross Profit Gross Margin

(%)(Rscr)

9

8

12

19

28

39

54

64

79

101

126

4 1 2 6 10

18

25

37

40

55

69

9.3

5.7

8.29.0

10.0 10.2

9.48.9 9.2 9.3 9.3

3.6

0.7

1.6

2.93.7

4.6 4.45.2

4.75.0 5.1

0

2

4

6

8

10

12

(10)

10

30

50

70

90

110

130

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

EBITDA PAT EBITDA margin PAT margin

(Rscr) (%)


V Mart Retail Ltd

19

Key Concerns

a) Increasing penetration of E‐retailing: With the increase in penetration of online retailing on the back of higher discount offering can provide a challenge to VRL’s business model and growth prospect. However, the small town consumers are price conscious who prefer to buy good quality products at a lower price. Thus, the online retailing will be restricted to standardized products like mobile, electronics etc and people will take time to adapt with the concept of apparel purchasing through online where the standardization is minimal. Further, we believe that poor logistics network in these smaller towns will further pose a restrictions in the growth of e‐retailing in VRL operates. Nevertheless, the company is closely vying this opportunity and is expected to get into the online platform in FY17E.

b) Competition and low entry barriers: The company faced heat not only from the big organized players like PFRL, SS, etc but also from the local unorganized players. In addition, the industry has a low entry barrier as anyone can open retail showroom/stores to cater to the nearby vicinity in which it operates. However, to successfully run the stores, the owner must have the better understanding of customer needs, low cost sourcing of products, effective inventory management, tighten supply chain and learning curve with the change in the retail dynamics should act as a source of competitive advantage for a retail company like VRL.

c) Risk of inventory pile up due to constant change in fashion trends: The retail industry everyday has to deal with the change in fashion trends. An effective management and understanding of change in fashion trends according to the customers’ demands make any retail company to succeed. In case, the management of VRL fails to meet the change in fashion demands and adjust its inventory accordingly, the company will have to bear the brunt of unsold inventory which will negatively impact the profitability of the company. However, the company has effectively reduced its inventory days to 130 in FY15 from 150 in FY14 and from high of 198 days in FY10. Hence we expect the company to continue to manage the inventory effectively thereby reducing the impact of fashion trends.

d) Increase in lease rentals: As of now, the rentals for the company are at 4.6% of total revenue. Any adverse rise in rental costs may hurt VRL’s profitability and our estimates.

V Mart Retail Ltd

20

Company Background Incorporated in 2002, VRL is a medium‐sized hypermarket format retail chain based in New Delhi. The company made its debut on the bourses on 20 February 2013 at a price of Rs216 per share. It is a multi‐brand family store, which offers apparel, general merchandise and kirana bazaar. VRL has established stores in metro cities, Tier‐I, Tier‐II and Tier‐III cities, which are primarily located as standalone stores in high‐street areas and shopping hubs. The company follows the concept of value retailing to target the strata of population belonging to the expanding aspiring class and middle class and is based on customer's socio‐economic conditions, purchasing power, demographic details and customer trends. VRL currently has 122 stores across 105 cities including metro cities and 14 states with a total area of 10.3 lakh sqft. VRL operates all of its stores on its own and has not gone for any franchise arrangement. Out of the current 122 stores, 34 stores also have kirana bazaars, through which it sells branded packaged food and non‐food items like personal care products. It doesn't sell perishable goods like fruits and vegetables. In FY15, apparel accounted for 90.6% of the company's sales, while 9.4% came from kirana business. With the company not including kirana bazaar in its new stores, the share of kirana business will automatically continue to drop.

Management and Directors background Lalit Agarwal (Chairman & Managing Director): holds Bachelor’s Degree

in Commerce from Bombay University, and Diploma in Financial Management from Narsee Monjee Institute of Management Studies, Mumbai. He has more than 16 years of rich experience in the retail industry. He spearheads the company and is responsible for formulating and implementing the business plans.

Madan Gopal Agarwal (Whole‐time Director): holds Bachelor’s Degree in Arts from City College, Calcutta University. He is the mentor and a guiding force behind the company’s growth. He has more than three decades of experience in the retail industry. He provides insights on cost control, overseas procurement of general merchandise and the kirana bazaar business vertical.

Deepak Sharma – Chief Financial Officer: holds Bachelor’s degree in

science from Delhi University. He is a member of The Institute of Chartered Accountants of India (ICAI) and has also completed certificate course on valuation of ICAI and QMS Lead Auditor Training organised by Federation of Indian Chambers of Commerce and Industry or FICCI. He has nearly two decades of work experience. He is responsible for the finance and accounting function in addition to all statutory and internal compliances to ensure the adequacy and efficacy of internal controls, systems and processes.

The board comprises 2 Executive Promoter Directors, one Non‐Executive

Promoter Directorand 3 Independent Non‐Executive Directors.

V Mart Retail Ltd

21

Financials

Income statement Y/E Mar (Rs cr) FY15 FY16E FY17E FY18E

Revenue incl OI 721 863 1,093 1,355

Operating profit 64 79 101 126

Depreciation (5) (18) (21) (25)

Interest expense (4) (3) (1) (0)

Other income 2 2 3 4

Extraordinary income (2) 0 0 0

Profit before tax 55 60 82 104

Taxes (18) (20) (28) (35)

Exceptional 0 0 0 0

Net profit 37 40 55 69

Balance sheet Y/E Mar (Rs cr) FY15 FY16E FY17E FY18E

Equity capital 18 18 18 18

Reserves 187 224 275 340

Net worth 205 242 293 358

Minority Intt 0 0 0 0

Debt 30 15 0 0

Def.tax liability (1) 3 7 12

Total liabilities 235 260 300 370

Net Fixed assets 99 114 126 146

CWIP 0 0 0 0

Investments 22 7 0 0

Net working capital 111 123 150 183

Inventories 183 218 271 333

Sundry debtors 0 0 0 0

Other current assets 21 26 33 41

Sundry creditors (75) (96) (121) (150)

Other curr lib & Prov (19) (26) (33) (41)

Cash 3 16 23 41

Total assets 235 260 300 370

Cash flow statement Y/E Mar (Rs cr) FY15 FY16E FY17E FY18E

Profit before tax 55 60 82 104

Depreciation 5 18 21 25

Tax paid (18) (20) (28) (35)

Working capital ∆ (6) (12) (27) (33)

Operating cash flow 36 45 49 61

Capital expenditure (32) (33) (33) (45)

Free cash flow 3 12 16 16

Equity raised 1 ‐ ‐ ‐

Investments 12 15 7 ‐

Debt fin/disposal (14) (15) (15) (0)

Dividends paid (3) (4) (4) (4)

Other items 2 3 4 6

Net ∆ in cash 1 12 8 18 Source: Company, India Infoline Research

Key ratios Y/E Mar FY15 FY16E FY17E FY18E

Growth matrix (%)

Revenue growth 25.3 19.7 26.7 23.9

Op profit growth 19.2 23.3 28.1 23.9

EBIT growth 40.8 3.5 31.3 24.7

Net profit growth 48.2 7.4 36.6 26.4

Profitability ratios (%)

OPM 8.9 9.2 9.3 9.3

EBIT margin 8.5 7.4 7.6 7.7

Net profit margin 5.2 4.7 5.0 5.1

RoCE 18.5 17.2 20.2 21.3

RoE 19.9 17.9 20.5 21.3

Per share ratios

EPS 20.7 22.3 30.4 38.5

Dividend per share 1.5 1.7 2.0 2.0

Cash EPS 23.3 32.0 42.0 52.6

Book value per share 114.0 134.3 162.4 198.5

Valuation ratios (x)

P/E 21.6 20.1 14.7 11.6

P/CEPS 19.2 14.0 10.7 8.5

P/B 3.9 3.3 2.8 2.3

EV/EBIDTA 12.7 10.1 7.7 6.1

Payout (%)

Dividend payout 7.4 8.9 7.7 6.1

Tax payout 32.5 33.5 33.5 33.5

Liquidity ratios

Debtor days 0 0 0 0

Inventory days 102 102 100 99

Creditor days 42 45 45 45

Leverage ratios

Interest coverage 14.3 19.4 75.3 9,375.8

Net debt / equity 0.1 (0.0) (0.1) (0.1)

Net debt / op. profit 0.4 (0.0) (0.2) (0.3)

Du‐Pont Analysis Y/E Mar (Rs cr) FY15 FY16E FY17E FY18E

Tax burden (x) 0.68 0.67 0.67 0.67

Interest burden (x) 0.90 0.95 0.99 1.00

EBIT margin (x) 0.09 0.07 0.08 0.08

Asset turnover (x) 2.33 2.43 2.62 2.67

Financial leverage (x) 1.65 1.59 1.56 1.56

RoE (%) 19.9 17.9 20.5 21.3 Source: Company, India Infoline Research

‘Best Broker of the Year’ – by Zee Business for contribution to brokingNirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy.

'Best Equity Broker of the Year' – Bloomberg UTV, 2011IIFL was awarded the 'Best Equity Broker of the Year' at the recently held Bloomberg UTV Financial Leadership Award, 2011. The award presented by the Hon'ble Finance Minister of India, Shri Pranab Mukherjee. The Bloomberg UTV Financial Leadership Awards acknowledge the extraordinary contribution of India's financial leaders and visionaries from January 2010 to January 2011.

'Best Broker in India' – Finance Asia, 2011IIFL has been awarded the 'Best Broker in India' by Finance Asia. The award is the result of Finance Asia's annual quest for the best financial services firms across Asia, which culminated in the Country Awards 2011

Other awards

2012BEST BROKING HOUSE WITH

GLOBAL PRESENCE

2009, 2012 & 2013BEST MARKET

ANALYSTBEST BROKERAGE,

INDIAMOST IMPROVED,

INDIABEST BROKER,

INDIA

2009FASTEST GROWING

LARGE BROKING HOUSE

Recommendation parameters for fundamental reports:

Buy – Absolute return of over +15%

Accumulate – Absolute return between 0% to +15%

Reduce – Absolute return between 0% to ‐10%

Sell – Absolute return below ‐10%

Call Failure ‐ In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst

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