Vishal Bearings

Vishal Retail is entering the capital market on 11th June 07 with a public issue of Rs.110 crores in the price band of Rs.230 to Rs.270 per share. Strangely the issue has been kept open only for 3 days which is closing on 13-06-07. This goes on to show the confidence of the promoters. However, it's strange to note that on the cover of Prospectus and on page 10, under the head "Capital Structure'', face value of the share has not been stated. The company is a retail house, having 50 stores located in 18 States over about 12.82 lakh sq. feet. Of these, 27 stores are in North India. The apparel manufacturing unit of the company is located at Gurgaon in Haryana. The company now proposes to open 22 new retail stores for which fund requirement is estimated at Rs.105 crores. This is being met fully from the proposed issue. The company is opening its second store in Mumbai, Kolkata, Bangalore, and Pune, under its proposed expansion plan. Remaining 18 stores are being opened in Tier III cities like Faridabad, Mysore, Surat, Vijaywada and Jammu. For FY 07 the total sales of the company was placed at Rs.602.65 crores on which profit before tax was Rs.39.29 crores and net profit was at Rs.24.98 crores giving NPM of 4.15%. Of the total sales, private label contributed Rs.58.36 crores, which is 9.68% of total sales. The present issued equity capital of the company is at Rs.18.32 crores of which promoters stake is about 78%. The main USP of the issue is its shareholders list. It is quite exciting to see big names like HDFC (2 lakh shares) Benett Coleman &amp; Co. (20.55 lakh) Burman family of Dabur (1 lakh shares) and Munjal family of Hero Honda (1.50lakh shares). Except for Benett Coleman, all other investors have subscribed to the equity shares at Rs.200 per share. Not bad. Benett Coleman subscribed at Rs.146 partly by fresh issue, way back in October 05 and partly by conversion of preference shares in July 06. The equity of the company, post issue shall rise to Rs.22.40 crores if issue is considered at the upper band of Rs.270. With this, the expected market capitalization of the company would be at Rs.600 crores, which is very attractive when compared to the market capitalization of Trent at Rs.1,300, Shoppers Stop at Rs.2,100 crores and Pantaloon Retail at Rs.6,000 crores. The debt of the company as at 31-03-07 was at Rs.240 crores which is backed by net current assets of equivalent amount. Net worth of the company as on that date was at Rs.126.76 crores. The Retail industry has a very bright future ahead and consolidation will be the key factor in the time to come. Once Reliance, Bharati and Birlas expand in this field, the smaller players might become their acquisition target. Any player who has established himself can easily expand and at the same time also becomes an attractive acquisition target. The company falls in both the categories which shall be ultimately advantageous for its shareholders. Based on FY 07 performance, the company posted an EPS of Rs.13.64 on pre-issue equity. For FY 08 on expanded equity of Rs.22.40 crores, the company is certain to post an EPS of Rs.15, even if new stores are not considered to be operational by then. This translates into a PE multiple of 18 on forward earning, which is very attractive when compared to its peers. To conclude, the company is an established player in the retail segment with good growth plans lined up. Hence investment is advised in the issue, at the upper band of Rs.270.

Vishal Bearings

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