Markets
V-Mart investors are full of optimism, but Limeroad losses remain a concern
Summary
- V-Mart acquired Limeroad in FY23 to push its omnichannel strategy, but has been cutting costs to reduce Limeroad’s losses of late.
- Limeroad’s Ebitda loss in FY24 stood at ₹71.6 crore and V-Mart expects the FY25 loss to be 40-50% of that.
V-Mart Retail Ltd shares were up more than 5% on Friday and hit a new 52-week high of ₹3,284.95. Earlier this week, the value fashion retailer said in its June-quarter update that total revenue increased by about 16% year-on-year to ₹786 crore. Since then, V-Mart’s shares have gained almost 12%. Note that last quarter’s growth was on a high base as revenue had increased by 15.4% in the June 2023 quarter.
Even so, one factor that investors are tracking keenly is the turnaround in its digital marketplace Limeroad. Last quarter Limeroad’s revenue – which comprises the commission it charges sellers on its net merchandising value – stood at ₹12 crore, down 29% year-on-year. “This is a cause for concern and would raise questions around the path to profitable growth in the long term for Limeroad," said a report by Nirmal Bang Institutional Equities.
Cutting costs, and losses
V-Mart acquired Limeroad in FY23 to push its omnichannel strategy and integrated the business into its operations on 11 November 2022. V-Mart has been trying to reduce losses from Limeroad by cutting expenses. Limeroad’s Ebitda loss narrowed for the third straight quarter in January-March. Ebitda, or earnings before interest, tax, interest and depreciation, is a key measure of profitability. Limeroad’s Ebitda loss in FY24 stood at ₹71.6 crore and V-Mart expects the FY25 loss to be 40-50% of that. This should have a positive impact on the overall margin in FY25.
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The company has also been closing non-performing stores, which is expected to impact profit margins favourably as well. It closed 25 stores in FY24 – 13 V-Mart stores and 12 Unlimited stores. In the June quarter, V-Mart opened seven new stores and closed three, taking the total to 448 – 370 V-Mart and 78 Unlimited – at the end of June.
To improve footfalls and boost volumes, V-Mart has made strategic price cuts in FY24. Prices are expected to remain stable for now.
Regional competition risk
Meanwhile, with the recent gains, V-Mart’s shares have appreciated by 47% in the past year, suggesting investors are capturing a good share of the optimism. Still, the stock remains far below the all-time high of ₹4,496.60 it touched in October 2021.
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Improving rural demand should aid growth ahead. “Closing non-performing stores may result in +8% same-store sales growth and omni-channel strategy for Limeroad to check profitable growth," Centrum Broking analysts said in a report on 4 July. “With a new design team in place, V-Mart's focus on launching trendy fashion provides huge headroom for growth," they added.
Given the strong visibility on profitability, the brokerage has trimmed its estimate for losses in FY25 and increased its earnings estimate by 62% for FY26.
To be sure, execution remains key, and a potential increase in regional competition is a key risk for V-Mart.Persistent Systems investors must look beyond its shiny new AI acquisition
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