Russia's largest electronics retailer M.Video-Eldorado reported 24% year on year revenue growth under IFRS for 1H21, in line with expectations.

To remind, M.Video has set an ambitious guidance to double its gross merchandise volume (GMV) in five years, from RUB0.5 trillion in 2020 to RUB1 trillion ($13.5bn) by 2025. "The winner is the lion and takes most of the business. You cannot do things halfway," said M.Video-Eldorado Group CEO Alexander Izosimov in an exclusive interview with bne IntelliNews.  

The growth in the share of OneRetail Strategy customers (from 42% in 2020 to 57% in the middle of 2021 to 85% in the mid-term) should be the key driver behind doubling GMV.

However, in the reporting period increased investment and the 33% jump in cost of goods sold led to adjusted EBITDA slip of 2.6% y/y, with EBITDA margin contracting by 2.8 percentage points to 10.6%.

Net profit of M.Video gained 19% y/y and beat the expectations due to one-off effects such as RUB3.7bn positive effect from the sale of Goods.Ru marketplace and RUB2.5bn debt write-off by VTB Bank. Not accounting for one-offs, the bottom line would contract by RUB2.2bn, BCS Global Markets estimated. 

While the one-off effects supported the results and allowed M.Video to make a solid dividend per share proposal (RUB35.5 per share or 5.5% dividend yield), BCS GM sees the results as mixed due to contracted EBITDA margins. 

Rise in costs and lower gross margins should could lead to more cautious outlook for 2H21, BCS GM warns, while still affirming a Buy call on M.Video shares.

The CEO of the company during the conference call admitted that price competition is increasing, as marketplaces are stepping up the pressure, Sova Capital wrote. M.Video has responded with increased investments in prices and promo activity, which weighed on the gross margin but paid off thanks to the rapid growth in sales in 1H21. 

"The adjusted numbers were weaker than our forecasts for 1H21, as price investments and opex were required to drive top-line growth," Sberbank CIB wrote, while noting that that company is still on track to meeting the full-year guidance.

During the conference call, M.Video reiterated its guidance of a 5-7% EBITDA margin this year and noted that its top-line growth would decelerate in 2H21. However, as it expects net debt/EBITDA to remain below 2x in 2H21, it should still be able to pay dividends.

The management is also working to make the retailer’s promo mechanics more efficient, targeting a shift away from market-wide offers to a personalized pricing approach. "This should reduce margin pressures, as well as result in the stronger engagement of suppliers who are interested in more detailed customer data and tailored offers," Sova Capital believes, while affirming a Buy call on M.Video's shares.