Vishal Retail Listing Forecast

Inter Firm Comparison

Particulars	Units	Vishal Retail	Pantaloon Retail	Trent	Kewal Kiran	Shoppers Stop	Provogue	Gokaldas Exports
Industry		Retail	Retail	Retail	Apparel	Retail	Apparel	Apparel
Sales	Rs.crore	602.7	2885.2	613.3	133.6	828.0	239.0	1039.7
OPM	%	11.1	6.8	10.5	24.4	9.6	14.1	12.5
PAT	Rs.crore	25.0	68.5	33.9	18.7	24.2	19.3	70.5
PAT Margins	%	4.15	2.37	5.53	13.96	2.92	8.06	6.78
EPS	Rs.per share	11.15	4.87	21.54	15.17	6.99	11.72	20.52
PE ratio	Times	24.21	106.30	32.73	12.49	85.28	40.62	12.63
Market price	Rs.per share	270	517.3	704.8	189.4	596.1	476.05	259.2
RONW	%	19.71	12.1	5.7	19.1	8.8	10.7	16.9
Book Value	Rs.per share	69	38	227	79	87	59	121
Market Cap	Rs.crore	605	7278	1111	233	2076	909	891
Equity Share Capital	Rs.crore	22.4	28.14	15.76	12.325	34.83	19.0976	17.19
Earnings growth Rate	%	100.3	17	20.65	60	negative	49.65	15.67
Face value	Rs.per share	10	2	10	10	10	10	5
Market Cap to sales	Times	1.00	2.52	1.81	1.75	2.51	3.80	0.86
PE Growth Rate	Times	0.24	6.25	1.58	0.21	negative	0.82	0.81
No.of equity shares	Crore	2.24	14.07	1.576	1.2325	3.483	1.91	3.438
Price to book value	Times	3.90	13.79	3.11	2.40	6.89	8.14	2.14
Retail Space	Sq feet	12,59,556	50,00,000	11,00,000		28,00,000

Listing Scenario

Scenario -1	Sum of Parts Valuation of the business
Segment revenue	% contn to revenue	Comparable company	Adjusted PE of Company	Sum of Parts Valuation
Apparel	63%	Provogue	32	20.2
Non Apparel	22%	Shopper Stop	85.28	18.8
FMCG	15%	Pantaloon	106.3	15.9
		Expected PE for Vishal Retail		54.87
		EPS for FY 2007		11.15
		Target Price upon listing		612

Under Scenario 1, I have assumed the sum of parts valuation method of the various businesses of Vishal Retail Ltd. to arrive at its probable target price upon listing. As per this assumption the target price works out to Rs.612 against the issue price of Rs.270.

• In the apparel business, an aggressive comparable listed player is Provogue India which has a similar business line to Vishal Retail as far as apparel manufacturing is concerned.
• In the non apparel segment Shoppers Stop is the most active player
• Though Pantaloon is the big daddy having a presence in all retail segments, we have taken the proportionate PE for the FMCG business alone.

Based on an EPS of 11.15, the price of Rs.612 discounts trailing FY 07 earnings by 55 times approximately. Though Pantaloon and Shoppers Stop may be bigger in size and scale compared to Vishal retail, they still trade at remarkably high valuations as denoted above in the table which should augur well for Vishal Retail’s listing too.

Listing Scenario 2: Based on Retail Space comparison with major retail players

	Scenario -2		As on 31/03/2007
A	Vishal Retail Space	Square feet	1259556
B	Pantaloon Retail Space	Square feet	5000000
	Size of Vishal Retail	A/B	0.25
	Market Cap of Pantaloon	Rs. Crore	7278
	Expected Market Cap of Vishal Retail	Rs. Crore	1419	D
	(At 78% of Pantaloon)	(For apparel and FMCG)	(0.78*7278*0.25)
C	Shopper Stop Retail Space	Square feet	2800000
	Size of Vishal Retail	A/C	0.45
	Market Cap of Shopper Stop	Rs. Crore	2076
	Expected Market Cap of Vishal Retail	Rs. Crore	206	E
	(At 22% of Shopper Stop)	(For non apparel)	(0.22*0.45*2076)
	Total Market Cap	Rs. Crore	1625	D+E
	No.of equity shares	Crore	2.24
	Expected Market Price		725

Therefore the target price under Scenario 2 is Rs.725

Scenario 3: Trent and Vishal Retail are of similar size based on the land reserves held by them. Trent is trading at a Market Cap to Sales Ratio of 1.81 times compared to Vishal retail’s 1.

Scenario -3	Trent	Vishal	(Similar Sized Players)
Market Cap to Sales	1.81	1
Extrapolating for Vishal Retail for valuation gap - market Cap comes to		1090.9	crore
Valuation per share	487

Therefore even assuming a conservative estimate of 1.81 as the market cap to sales ratio for Vishal Retail, the stock should reach Rs. 487 on the listing date itself. Also another factor that favours Vishal retail is that it’s a much diversified player when compared to Trent and therefore will command superior valuations.

Vishal retail has the first mover advantage in Tier 2 and 3 cities and has a good brand recall in these cities and it’s creating a pan India presence through aggressive expansion plans in the south and the western parts of India. Companies with well diversified business models and aggressive growth plans always do well on the bourses during a secular bull run period as is currently under progress. The Nifty and Sensex have created new highs and the nifty has broken important technical levels above 4360 in yesterday’s trade. The Sensex is in sight of 15000 which should be topped anytime and during the course of the Q1 results season if the Nifty is able to chug along to 4500 ( the next important technical level for the nifty for confirmation of the secular bull run), that will amount to a reassurance of the India growth story remaining intact and ensure that the bears remain on the sidelines for months to come.

Under these circumstances, it can be safely assumed that Vishal Retail will trade within the range of Rs.500 -600 during the listing week (i.e from 4 th July to 11 th July) and if the market conditions continue to be favourable, it can even take out the target price of Rs.725 in the near term given the superior margins, low gearing and earnings growth momentum of the company compared to Pantaloon Retail and Shoppers Stop, albeit the company will always trade at a discount to Pantaloon Retail given its relatively smaller size and distribution.