Axis Securities picks V-Mart as 'Stock Pick of the Week'; Check strategy

Axis Securities on V-Mart: The brokerage remains optimistic on the diversified retail player V-Mart and has assigned a buy rating on the stock while naming it the stock pick of the week for investors

Axis Securities, Stock of the Week: As the market enters Budget Week, domestic brokerage firm Axis Securities has come up with its stock pick of the week for investors. The brokerage firm remains optimistic on the diversified retail player V-Mart and has assigned a buy rating on the stock while naming it the stock pick of the week for investors.

"It is believed that value players such as V-Mart and Relaxo should see earnings and profitability improve as rural areas and small towns recover. This recovery, coupled with market share gains from smaller and unorganised players, is expected to drive their performance," said the brokerage in its report.

Meanwhile, the shares of V-Mart started today's session with gains at Rs 3,137.70 and continue to trade northward on the BSE on Monday. At around 01:06 PM, the stock was quoted at Rs 3,240.35, up 1.05 per cent on the BSE.

Axis Securities, in its report, has recommended a buy rating on the stock with a near-term target price of Rs 3,450 per share.

Here is the investment rationale of Axis Securities:

Performance likely to revive going forward: Higher inflation and the increase in prices of essential goods have been impacting overall consumption in rural and smaller towns. However, commentary from most consumer companies indicates improved demand conditions in these areas.

V-Mart, in its pre-quarter update, reported revenue of Rs 786 crore, up 16 per cent year-on-year, with 11 per cent year-on-year growth in same-store sales growth (SSSG). Considering this, Axis Securities expects value retailers like V-Mart to report healthy performance going forward, driven by a normal monsoon, increased government spending in rural areas, and a strong festive season in H2FY25.

Reduction in LimeRoad losses: V-Mart, in November 2022, acquired LimeRoad, which initially put pressure on its balance sheet. Since then, the company has been working to reduce LimeRoad's losses. In Q4, EBITDA losses for LimeRoad moderated to Rs 12 crore as the company cut down on ad spending. Moreover, V-Mart aims to achieve breakeven for LimeRoad in FY25, which, as per the brokerage, is likely to drive margins for the company in the coming quarters.

Budget expectation: The brokerage said that following the formation of the NDA 3.0 government, market expectations are growing for some allocation to address rural challenges at the bottom of the pyramid, alongside adjustments in Capex spending. At the current juncture, it believes that the budget will likely strike a balance between Capex spending and addressing rural challenges, which will, in turn, drive rural growth.

India likely to see normal monsoon: According to recent (July 18, 2024) IMD data, most parts of India are experiencing normal monsoon conditions, particularly in the North, Central, and South regions, which are V-Mart's core markets, highlighted the brokerage in its report