Key Data

CMP Rs 802

Sector Retail

Face Value Rs.10

BSE Code 532867

52 Week H/L Rs 1001/ 423

Market Cap Rs 1796 Cr

Investment Rationale

Vishal Retail is a value retail chain targeting middle and lower middle-income class consumers with a focus on non-metros. The company markets Apparel, Non-apparel and Fast Moving Consumer Goods (FMCG) through its hypermarket chain “Vishal Mega Mart”. It has apparel manufacturing plants at Gurgaon and Dehradun and 29 warehouses located in eight cities across India. The Company operates 90 stores spread over 1.978 million sq.ft of area in 56 cities across India. It plans to increase its coverage to 10 million sq.ft by FY2011. Vishal Retail has differentiated itself with its strong focus on private labels manufactured inhouse, and quasi-private labels sourced from low-cost manufacturers. Backward integration has enabled the company to control is operating cost and thereby pass the benefit to customers in form of reduced prices. The company intends to increase its in-house manufacture, design and  development of products whereby it would manufacture at least 25% of its apparel requirement. Vishal Retail has been growing rapidly by ramping up its presence across Tier I, Tier II and Tier III cities. Besides, Vishal Retail is also increasing the share of Non Apparel and FMCG sales in order to attract more footfalls to its stores as also to reduce the risk associated with seasonality of apparel business. Share of Non Apparel and FMCG sales stood at 38.4% in 9MFY2008 as compared to 36.7% in FY2007. The company would directly  procure FMCG goods from the manufacturers to reduce cost, drive volume growth and boost profit margins. We believe that the company with its value retail model and a first mover’s advantage in non-metros and Tier II & Tier III cities would continue to grow rapidly at the top and bottom-line for the next couple of years.

Vishal Retail has opened eight new stores in the first two months of CY2008 taking the total number of stores to 90 and total area of 1.978 million sq.ft. Besides, the company is planning to raise fresh capital through preferential allotment route.

Total revenues at Rs692.64crore for 9MFY2008 (114.5% of FY2007 revenues) were driven by addition in retail space & increased footfalls. The sales per sq. ft. were Rs5023 during this period. The Q3FY08 revenues at Rs304.2crore were 44% of the 9MFY2008 revenues. 9MFY2008 EBITDA stood at Rs91.04crore (131.1% of FY2007 EBIDTA of Rs69.43crore). The EBITDA margin increased to 13.1% during the period from 11.5% in FY2007 with increase in private labels sales from 9.6% of FY2007 sales to 15% of 9MFY2008 sales as well as economies of scale. Q3FY2008 witnessed a smart improvement in EBIDTA margins to 14.3%. Net Profits for the nine months stood at Rs30.28crore, which is 120.8% of FY2007 and NPM was up to 4.4% in 9MFY2008 from 4.1% in FY2007 with enhanced profitability and 2.4x increase in other income.

At CMP of Rs802, Vishal Retail is quoting at a P/E multiple of 58.6, EV/Sales of 3.4x and EV/EBIDTA of 29.1x.

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Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.
1102, Stock Exchange Tower, Dalal Street,
Mumbai 400 001. Phone : 91-22-56338050 Fax : 5633 8060
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