About V2 Retail Ltd, short for Value and Variety, is a prominent player in India’s value retail segment, specializing in affordable apparel and lifestyle products. The company targets the price-conscious neo-middle class, focusing primarily on underserved Tier II and III cities. With a network of 189 stores across 17 states, V2 has established a strong presence, particularly in North and East India. V2 Retail traces its origins to Vishal Retail, founded by Ram Chandra Agarwal, with an initial focus on value-driven retail. The company went public in 2007, achieving a valuation of ₹2,000 crore. However, the 2008 global financial crisis severely impacted consumer demand, and Vishal Retail’s debt-fueled expansion became unsustainable. The company underwent a debt restructuring process, and in 2011, its brand and retail assets were sold in a distress sale to TPG Capital and the Shriram Group. Following this setback, Agarwal re-entered the market with a renewed strategy, launching a new brand, V2 – Value and Variety, and opened the first store in Jamshedpur in 2011. Since then, the company has adopted a measured and disciplined growth strategy, gradually rebuilding its presence and turning around operations over the years.(Note: The Company no longer has any affiliation with Vishal Mega Mart, as the brand and related assets were sold in 2011. Investors should avoid drawing any comparisons or assuming a connection between the two entities. ) Understanding the Business Model Approximately 88% of V2 Retail’s revenue is derived from its core segment of value apparel, offering quality clothing at affordable prices. The remaining 12% comes from lifestyle products, which include items such as deodorants, wallets, sunglasses, and ladies’ handbags. Regional Mix: The majority of V2 Retail’s sales are generated from Tier III and Tier IV towns, contributing approximately 60–65% of total revenue. Tier II cities account for around 20–25%, while Metro and Tier I locations make up the remaining 10–15%. The company targets two primary customer segments: (i) consumers who once purchased unbranded apparel but are now transitioning to affordable branded options, and (ii) customers in Tier II to Tier IV cities, including both urban and semi-urban areas, who are progressively embracing branded fashion as their purchasing power and aspirations rise. The company positions itself as a “one-stop family shop”, offering a wide range of products across various categories. The revenue mix is as follows: Men's apparel contributes 37%, Women's apparel makes up 26%, Kids' apparel accounts for 26%, and Lifestyle products contribute 12%. Currently, 70–80% of the company’s new store openings are concentrated within existing clusters, where it already has an established presence. However, looking ahead over the next 3 to 5 years, the company aims to evolve into a pan-India retailer. As part of this vision, around 20% of new stores will be opened in untapped markets, allowing the company to test new geographies and expand its national footprint.It has to be noted that it takes around 2-3 years a new store to fully mature. The company’s average selling price remains below ₹300, and management intends to keep it within a ±5% range, believing that maintaining lower price points will help drive higher footfall and boost average bill value, ultimately supporting overall revenue growth. In house Design & Manufacturing: Currently, 90–95% of the company’s sales come from private label products, which deliver 1–2% higher gross margins compared to third-party brands. Within this, 30–35% of products are designed in-house, and the management aims to increase this share to around 80% over the coming years. Of the current in-house designs, around 20% are manufactured internally, enabling greater cost efficiency, quality control, and improved supply chain management. Efficient Inventory Management and Discount Strategy The company has dedicated discount zones in its stores and now identifies slow-moving inventory within 2–3 weeks (earlier it was 3 months). Items are first marked down by 30%, then 50%, and finally 70% if unsold. This faster turnaround is driven by improved throughput and fresher inventory, with the rationale that the opportunity cost of shelf space lost to slow movers is 3–4x higher than the potential margin loss from early discounting.In addition, the company has significantly reduced discount-driven sales, increasing the share of full-price (MRP) sales to 88–89% in FY2024, up from approximately 80% in previous years. Historical Financials The company undertook aggressive store expansion in FY19, but the momentum was disrupted by the COVID-19 pandemic, leading to a decline in revenue. Additionally, a post-COVID surge in cotton prices necessitated an increase in selling prices, which adversely impacted sales, given the price-sensitive nature of the company’s target customer base. The major shift in performance can be attributed to the following strategic actions taken by the management:Rack height was increased from 5ft to 7ft, boosting product visibility, inventory density, and improving store organization.Strict SOP adherence and defined employee KPIs have reduced chaos during peak footfalls and improved in-store efficiency.All designs are now stocked in a full size range, enhancing customer experience and reducing reliance on store staff.The company is the only value retailer with an in-store Distribution Centre (DC), enabling efficient, QR-coded inventory tracking and restocking via handheld devices.Rising share of private label products, particularly in-house designed SKUs, is driving better margins and brand control. Growth Drivers The company plans to open 100 new stores next year, with an estimated capex requirement of INR 1 to 1.05 crores per store. In addition, the working capital requirement is about INR 1.3 crores per store, bringing the total capital requirement for 100 stores to approximately INR 220–230 crores. Management has projected a 40-50% growth over the next 5-10 years, primarily driven by new store additions and a healthy same-store growth rate of at least 10%. The company follows a strategic approach for entering new states by initially opening a single store to test the market, gathering data, and learning from that experience. Based on these insights, additional stores are opened gradually in the state. This cautious expansion model has allowed the company to establish a presence in 17 states across India, demonstrating that the approach may yield positive results in the future. Industry Outlook The apparel segment within the discretionary non-food category is projected to grow at 16% CAGR between FY24 and FY27.Shift from Unorganized to Organized Players – The share of organized retail in the apparel sector has grown from approximately 14% in FY 2007 to around 46% in FY 2024. Over the past sixteen years, organized retail has not only captured incremental demand but has also successfully shifted a significant portion of the demand from unorganized apparel retail in its favor. We believe that the shift from unorganized to organized retail will primarily come from the non-urban segment, and value retail will be the biggest beneficiary of this trend. It’s unlikely that a consumer accustomed to buying non-branded apparel will suddenly transition to premium categories. Instead, they are more likely to make the shift through value retail players, who offer a balance of affordability and quality. India's youthful population, with a median age of 29.5 years in 2023, presents a significant growth opportunity for the apparel market. This demographic, expected to remain under 30 until 2030, is highly educated, tech-savvy, and increasingly aspirational, driving demand for premium and trendy products. Rising urbanization and higher disposable incomes are further fueling the demand for affordable yet stylish clothing. As more people move to urban areas, value retail players are well-positioned to capture this demand by offering quality apparel at accessible prices. This demographic shift, along with evolving consumer preferences, will play a pivotal role in shaping the future of India’s apparel industry. Peer Comparison Value retail apparel refers to clothing and fashion products that are offered at affordable prices without compromising on quality Note: Vishal Mega Mart generates the majority of its revenue from the non-apparel segment, so it wouldn't be appropriate to consider it a pure-play value retail apparel player when comparing key performance indicators. If we examine the table above, it’s clear that Zudio and Westside stand out as the top performers, though it's important to note that both operate in the value-to-mid-premium segment. On the other hand, Vishal Mega Mart generates the majority of its revenue from the non-apparel segment. Therefore, to stay aligned with the focus of value retail apparel, we will limit our analysis to Style Bazar, V2, and V-Mart. Based on the above table, it is evident that the company outperforms its peers, demonstrating strong same-store sales growth along with positive ROCE and ROE. Management has further guided these return ratios to reach around 25% within the next 18–25 months. Valuation The rise of Trent, driven largely by the success of Zudio, has brought increased investor attention to the value retail segment. Currently, Trent is trading at a rich EV/EBITDA multiple of ~65x, while other value apparel players such as V2 Retail and V-Mart are trading at significantly lower multiples of 20–30x. However, it’s important to note that Trent’s phase of rapid store expansion and revenue growth may begin to moderate, whereas similar growth momentum now appears to be shifting toward V2 Retail. Management of V2 Retail has guided for a 40–50% annual growth trajectory over the next 5–10 years, driven by aggressive store expansion and strong operational performance. Given these factors, we anticipate a potential re-rating of V2’s valuation. Accordingly, we have used a target EV/EBITDA multiple of 42.5x in our projections and estimate an upside potential of approximately 105% from current levels. Conclusion V2 Retail offers a strong investment case in the value apparel segment, driven by disciplined expansion across Tier II–IV towns and increasing operational efficiencies. Its growing focus on private labels, in-house design, and tech-enabled inventory systems positions it well for scalable, margin-accretive growth. With management guiding for 40–50% annual growth over the next 5–10 years and improving return ratios, the company is well-placed to capitalize on rising demand for affordable fashion across underserved markets. This makes V2 a high-growth, high-potential player in India’s evolving retail landscape. Hence, investors can consider this stock for long term investments with a Target of 3,726.