V2 Retail (V2RETAIL) Q4 08/09 earnings summary

Executive summary

• FY09 revenue rose 38.85% YoY to Rs 13,930.3m, but the year ended with a Rs 944.9m net loss after a sharp Q4 deterioration and heavy interest costs.

• Expansion was scaled back amid weak retail demand, high leverage and liquidity pressure; operations shifted toward store rationalization, private labels and lower-capex growth models.

Financial highlights

• Gross sales were Rs 13,930.3m versus Rs 10,053.1m; sales net of VAT were Rs 13,232.3m versus Rs 9,529.7m.

• PBT was a loss of Rs 1,403.7m versus profit of Rs 631.9m; net loss was Rs 944.9m versus net profit of Rs 406.4m, reflecting a deferred-tax credit.

• Annual EBITDA was Rs 75.36m versus Rs 1,286.5m; Q4 EBITDA was negative. Interest expense increased to Rs 963.3m from Rs 378.7m.

• Cost of goods sold rose 62.68% to Rs 9,136.8m; personnel expense rose 69.28% to Rs 1,224.1m, while manufacturing, administrative and other expenses increased 53.91% to Rs 2,358.8m.

• Adjusted for an Rs 972.6m inventory value reduction on selected stock categories, reported inventory rose 123.75% YoY to Rs 6,670.8m.

Outlook and guidance

• FY10E private-label contribution target was 25%, versus 19.7% in FY09; private labels were expected to carry 5–6% higher margins than branded products.

• FMCG and non-apparel combined contribution target was 55%, up from 43.5% in FY09; apparel contribution was expected to decline from 56.5%.

• Planned priorities included reducing debt, seeking lower interest rates, expanding via franchise and revenue-sharing models, increasing shop-in-shop and excess-space arrangements, and centralizing warehousing.

• FY10 growth plans were curtailed after store-delivery delays and adverse conditions; the strategy emphasized fewer owned stores and lower-capital franchise expansion.