Vishal Retail

Vishal Retail

Name of the Company: Vishal Retail
Sector/Industry: Organised Retail
Issue Size: Equity Share of Aggregating Rs. 110.00 Crores (Of Rs. 10/- Each Share)
Issue Price: Rs 230 - 270
Issue Opens: Monday, June 11, 2007
Issue Closes: Wednesday, June 13, 2007
Promoter(s): Mr Ram Chandra Agarwal
Company Website: www.vishalmegamart.net
Book Running Lead Manager: Enam Financial Consultants
Registrar: Intime Spectrum Registry Ltd
Draft Red Herring Prospectus: www.sebi.gov.in/dp/vishalret.pdf


About the Company: Incorporated in 1986, Vishal Retail Limited is among the leading retail houses in India based in Delhi. Vishal Retail has around 46 outlets in 39 cities in India.
Vishal stores offer affordable family fashion at prices to suit every pocket. Vishal Retail also has apparel manufacturing plant at Gurgaon. It has seven distribution centers and a fleet of trucks for transportation.


Objectives of the Issue:

• To meet the expenses of establishing new retail stores.

The objective of this issue is crystal clear and will lot of value to shareholder’s money.

Strengths:

• Early Mover Advantage – Vishal is a player in organized retail since 2001. It is not one of the players who have joined the retail bandwagon recently.
• Retail Space: Vishal already has 11 lakh square feets of retail space under its control spread over 46 outlets. It has also finalized another 5 lakh square feets which will be operational in 2007 and 2008. Reliance and Bharti may talk a lot about thousands of crores of investment but in Vishal we already have a organized retail player of decent size.
• Expansion in Tier II and Tier III cities: I like Vishal’s expansion strategy which is contrarian in nature. Well known names like Pantaloon and Reliance are looking for retail space in Tier I cities but Vishal is concentrating on Tier II and Tier III cities. I think this strategy makes sense because of cheap real estate, less or completely no competition and high profit margins in Tier II and Tier III cities. I am quite sure that consumerism and purchasing power is good in cities like Mangalore, Mysore, Nasik, Ambala, Vijawada, Vadodara, Surat etc where Vishal is expanding.
• Private Labels: Vishal derives substantial revenues( about 20% from private apparel labels) which provide better profit margins and less dependency on others.
• High Profile Investors: Vishal has investors like Bennet Coleman & Co Ltd ,BCCL(11.21 % stake on pre issue equity capital), HDFC Limited (1.09 % stake on pre issue equity capital), Munjal’s of Hero group ( 1 % on pre issue equity capital) and Burman’s of Dabur group (0.4 % on pre issue equity capital). I made my investment decision as own as I saw such reputed names among investors. Vishal can be rest assured about favourable media coverage through BCCL (owner of Times of India and Economic Times).


Weakness:

I just can’t think of any weakness in this business model. This business model will go bust only, if there is severe catastrophe in India.


Financial Summary:

Vishal earned revenue of Rs 600 crores and recorded profits of Rs 25 crores in FY-07. For an organized retailer PAT margins of 4% is very good.


Valuation:

This issue is very reasonably priced. On post issue equity capital of 22.5 crores (approximately), the EPS works out to be 11.11. This gives a PE of around 24 times at higher band where as other peers like Pantaloon (55x) Provogue (46x) Trent (43x) Shoppers Stop (80x) are quoting at quite high PE.

The price band of Rs 230 -270 is very cheap for a company whose sales and PAT have grown at a compounded annual rate of 89.83% and 302.89%, respectively, during the period of FY04 and FY 07*.

Go ahead and apply in full strength. This is a multi bagger for sure.

Inputs From:
DRHP
http://www.chittorgarh.com/newportal/ipo_detail.asp?a=90
ET Finance dated Friday 8 June 2007.