V-Mart Retail stock unlikely to find favour among investors soon

Elevated and sticky inflation has weighed on the purchasing power of consumers in these regions, which in turn is hurting demand for apparels. Adding to the woes is the increase in costs of input materials such as cotton, which is driving up the prices of apparels. In H1FY23, V-Mart apparel’s average selling price rose by nearly 26% year-on-year (y-o-y) to ₹376.

Even so, its same store sales growth was below pre-covid levels as footfalls are yet to recover.

The stock’s dismal returns, reflects these concerns. Shares of V-Mart have corrected by 21% in CY22 while benchmark index Nifty 500 has gained 3.5%. A meaningful turnaround in the performance would depend on how quickly footfalls and volumes improve. To boost footfalls and thereby volume, analysts note that the company has reversed hikes taken earlier considering that its clientele is price sensitive and input cost is softening. And it seems to have worked.

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Analysts at Nirmal Bang Institutional Equities note that part price reversals have been incorporated by the company in the winter collection and another round of price reversals will be seen in the spring summer collection. In effect, V-Mart has seen a good response in the pre-winter sales as October and November have been good months with increasing footfalls in its key markets, said Nirmal Bang analysts.

But a significant recovery in rural demand is likely to be gradual, at best. Also, it could get delayed if the country’s macroeconomic situation deteriorates. Meanwhile, in October, the V-Mart stock was in focus after it acquired A.M. Marketplaces Pvt. Ltd or LimeRoad. Given that V-Mart’s negligible presence in the online format was a key concern, this is a step in the right direction. Expectations are that it would bolster the online presence by filling the digital gap and aid its overall sales.

“An omnichannel strategy is crucial for apparel retailers to drive growth given the increasing online traction. However, heightened competition from the likes of Amazon and Flipkart in the retail fashion segment necessitates ramping up of LimeRoad’s operations. This could weigh on V-Mart’s profit margin,” said an analyst requesting anonymity. In short, V-Mart’s stock lacks meaningful upside triggers in the near-term.