Zooplus has reported a solid start to FY’21 with sales up 16% yoy in 1Q’21, driven by increase in sales retention rate to 97% from 94% last year. Gross margin expanded 130bps yoy driven by the increasing share of own brands in the mix (17.4% of sales in 1Q’21 vs. 15.1% last year). EBITDA margin expanded 300bps yoy to 4.8% driven by higher gross margin and reduced marketing spend as the company focuses on higher quality new customers. The company has retained guidance for FY’21E. Subscriptions now account for 54% of repeat sales generating 83% higher sales per account. We believe Zooplus remains on track to achieve and beat its 2025 targets which imply a more than doubling EBITDA from 2020 levels, as the company has moved to a sustainable profitable growth focus backed by strong underlying market trends. The current CY’21E EV/sales multiple of 0.7x appears cheap for a well-invested, sustainable and profitable model, when compared to the online peer group average of 1.5-2.0x and peer Chewy trading at 2.9x. Reiterate BUY.
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