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Vishal Retail is a leading retailer in India. It follows the concept of value retail targeted towards the middle and lower-middle income groups. Its business approach is to sell quality goods at reasonable prices by either manufacturing in-house or directly procuring from manufacturers.
Vishal Retail started as a retailer of ready-made apparels but diversified its portfolio to facilitate one-stop-shop convenience.Currently, Vishal Retail sells ready-made apparels, home furnishing, household merchandise, and consumer goods. As of April 30, 2007, the company had 50 retail stores, including two franchisees spreading across about 1,282,000 square feet and located in 18 states across India.
Sector Boom in Retailing::Organized retail is set for a boom The organized retail in India is on a high growth path and is growing at the rate of 24-26% annually. The size of the total retail industry market is estimated to be around Rs 9,990 billion in 2004-05, with organized retailing accounting for a mere 3.5% of the India’s total retail market.
In its annual review, CRIS INFAC estimated the organized retail penetration to increase to 8% by 2010 at a CAGR of 26%. The organized retail penetration is projected to increase to 5.8% by 2007-08. Consumerism to drive growth Rapid economic growth and increasing affluence across income levels are translating into higher disposable incomes in the hands of consumers.
Growing urbanization, changing demographics and shifting consumer preferences are further aiding the consumption boom.
Organized retailers like Vishal Retail are ideally placed to meet this demand and, in the process benefit significantly. With a young population profile and consuming class expected to be 49% of the population by 2010, the consumption boom is likely to accelerate the retail segment.
Diversified product range Vishal Retail::Diversified product range In order to reduce its dependence on apparels, Vishal has been diversifying its portfolio of offerings. It has introduced a vast range of merchandise across apparels and accessories, FMCG products, food products and consumer durables with over 74,000 stock-keeping units (SKUs).
For FY07 Vishal Retail derives about 63% of its revenue from sale of apparels, down from 70% in FY06. In future, it plans to further reduce this to about 50%. Increased focus on FMCG to improve profitability .
Plans Ahead at Vishal Retail::Vishal Retail plans to increase its focus on the FMCG segment to increase footfall as well as revenues per square feet. FMCG products are usually meant to fulfill the daily needs of consumers and therefore bring customers to the stores on a frequent basis and this may in-turn lead to consumption of other products like apparels.
Vishal Retail believe retailing of FMCG products would also help to eliminate the impact of seasonality of the apparels, which depends on factors such as change in weather conditions and festival celebrations. Benefits of backward integration In order to reduce costs and take advantage of economies of scale, the company has integrated backward into manufacturing of its products.
Vishal Retail currently has an apparel-manufacturing unit at Gurgaon, Haryana. The plant, commissioned in 2004 has a capacity to manufacture 5,000 pieces per day and has achieved a capacity utilization of 80%. Further, the company is exploring the possibilities for establishment of another manufacturing facility, for which it has acquired certain portions of in Dehradun, Uttaranchal
Vishal Retail intends to manufacture at least 25% of its apparels requirement in-house. This will also reduce the dependence on external vendors and will result in lower turn-around time. Vishal Retail believe that through backward integration the company will substantially control the cost of production, resulting in higher margins of around 8-10% compared to apparel that are being sourced. Logistics and distribution network.
Vishal Retail strong distribution strengths::The company has a strong distribution and logistics network. It has set up seven distribution centers and warehouses, with a total floor space of 471,426 sq ft. across the country. Besides, it also owns a fleet of 41 trucks, which helps it to transport and deliver products in a cost and time efficient manner. These distribution and logistics set up is well networked and allows fulfilling the store requisition within a short time period. This not only ensures availability of merchandise in the stores in time but also minimizes transportation costs. Key Concerns Availability of trained manpower there is a shortage of manpower trained to suit the requirements of retail organizations, both at the shop floor level as well as middle level.
Risk Factors investing in Vishal Retail::With a growth in organized chains, companies are facing a high employee’s turnover. Entry of foreign players can make it all the more difficult as existing manpower could move to competitors. Obtain and retain retail spaces the company depends on leased retail space, to develop its stores. The business depends on the company’s ability to identify and acquire quality retail space at appropriate terms and conditions. If it fails to acquire right properties, it can face delays in execution of strategies, cost overruns and/or otherwise adversely affect the business operations and profitability.
Valuations of Vishal Retail::Valuations At the lower price of Rs 230, the issue is valued at a P/E multiple of 11.65x its diluted FY08E EPS of Rs 19.75. At the upper end of the band of Rs 270, the issue is valued at 13.25x its diluted FY08E EPS of Rs 20.37. The issue looks attractively valued compared to peers like Pantaloon, Shoppers Stop and Trent, which are currently commanding a higher P/E to their FY08E EPS. On an EV/ EBIDTA basis, the stock also looks undervalued.
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1. Written by
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
, on 27-06-2007 17:03
Vishal retail is expensive by good estimate |
2. Written by anil, on 27-06-2007 12:48
any other good retail stock other then vishal |
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