Money Tree

The salient features and extracts from the Red Herring Prospectus of the issue are given hereunder:

Issue Opens On : June 11, 2007
Issue Closes On : June 13, 2007
Issue Size : Rs. 1,10,00,00,000
Face Value : Rs.10/-
Price Range : Rs. 230 to Rs. 270/-
Issue Type : Book Building
Tick Size : Re.1/-
Market Lot : 25
Minimum Order Qty : 25
Listing Stock Exchange : BSE, NSE

Objects Of the Issue :
For Expenditure on establishment of new retail stores
To meet Expenses of the issue

Basis for Issue Price :

Face Value : Rs.10/-
Issue Price : 23 Times(Lower Price Band) of the Face Value.
Issue Price : 27 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 230 to Rs. 270
EPS for the last financial year 2006-07 : Rs.13.92
EPS for the last year (2005-2006) : Rs.7.98
Weighted Average EPS for the years 2005-2007 : Rs.10.00

Industry PE ratio:

Highest : 87.60
Lowest : 4.1
Industry Composite : 26.10

PE ratio of Vishal Retail Ltd. on the higher side of price band comes out to 19.39 times and on the lower side of the price band comes out to 16.52 times on the basis of EPS for the year ended on 31st march 2007.

PE ratio of the Peer Group

Pantaloon Retail Ltd : 87.6
Shopper’s Stop Ltd : 65.4
Trent (India) Ltd : 35.7

Industry Overview :

Organised retail in India is on a high growth trajectory and is growing at the rate of 24-26% annually. Thesize of the total retail industry market is estimated to be around Rs. 9,990 billion in 2004-05, with organised retailing accounting for a mere 3.5% of the India’s total retail market. In its Annual Review, CRIS INFAC estimated the organised retail penetration to increase to 8% by 2010 at a CAGR of 26%. The organised retail penetration is projected to increase to 5.8% by 2007-08. Retailing in India has witnessed tremendous growth in the last few years. Textile manufacturers like Bombay Dyeing, Raymond, S Kumar’s and Grasim were the first to set up retail chains. Thereafter, Titan successfully implemented the organised retailing concept in India by establishing a series of well-designed stores.
Organised retailing first started picking up in South India, primarily due to the availability of land at prime locations and cheaper real estate prices. The early ’90s saw the establishment of shops by Madura Garments and Zodiac, which focused on ‘one brand’. By the latter half of the decade, players in various segments were making their presence felt on the retail scene: Foodworld, Subhiksha and Nilgiris in food and FMCG; Planet M and MusicWorld in music; Crossword and Fountainhead in books. Since then organised retailing in India has witnessed a radical transformation. Shoppers’ Stop was the pioneer in department stores and the concept of malls evolved with Spencers in Chennai, Ansals in Delhi and Crossroads in Mumbai. Initially, the players making forays into the mall scene were those that had a construction background
like the Rahejas and the Piramals. Gradually, competition increased with more retail chains entering the business and setting up stores.
In spite of steep growth, the turnover of the top five retailers in India (Pantaloon Retail, Shoppers’ Stop, RPG, Trent and Lifestyle) was less than Rs 30 billion, which was about 8 per cent of the total organised retail market in 2004-05. In a bid to garner larger market shares, nearly all major players have announced huge expansion plans.
At present, most players have announced ambitious expansion plans. In order to differentiate and grow, players have adopted different strategies. Some have chosen to operate in multiple formats, some are expanding to smaller cities and others are focussing on supply chain management and operations. The strategies adopted by these players will not only determine turnover growth but also their profitability.

Business Overview :
The comapny has a chain of retail stores (Vishal Mega Mart) in India. As of April 30, 2007, the company operates 50 retail stores, including two stores which are operated by its franchisees. These 50 stores are spread over about 1,282,000 square feet and are located in 18 states across India. In its efforts to strengthen its supply chain, the company has set up seven regional distribution centres and an apparel manufacturing plant.

History :
The Company was incorporated on July 23, 2001 under the Companies Act, 1956 as Vishal Retail Private Limited. The Company was converted to a public limited company by a special resolution of the members passed at the annual/extra ordinary general meeting held on November 28, 2005. The fresh certificate of incoroporation consequent on change of name was granted to the Company on February 20, 2006, by the Registrar of Companies, West Bengal at Kolkata.

Financial Information :

Total income of the Company for the year ended 31st March, 2007 : Rs. 7711.57 millions
Total income of the Company for the year ended 31st March, 2006 : Rs. 3297.91 millions
Total income of the Company for the year ended 31st March, 2005 : Rs. 1618.25 millions

Net profit (after tax) for the year ended 31st March, 2007 : Rs.249.83 millions
Net profit (after Tax) for the year ended 31st March, 2006 : Rs.124.74 millions
Net profit (after Tax) for the year ended 31st March, 2005 : Rs. 30.20 millions

Comments :
The company is placed in a good space as a retail boom is on the cards. There are not many listed companies in this field and a few listed ones enjoy high PE ratios. The issue is priced very well as the PE ratio at the higher price band is lower than the industry’s average PE ratio and is much lower than Pantaloon Retail and Shopper’s stop, however the size of the company is not comparable with Pantaloons but still being in a good business and a good pricing should see healthy subscription by the investors. We recommend subscribing to the issue.