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Friday, February 1, 2013

V-Mart Retail Ltd IPO Ltd. IPO Review



Issue Highlights

Issue Period
1/2/2013-5/2/2013
Price Band
Rs 195-215
Issue Type
100% Book Building Issue
Issue Size
44,96,000 shares/96  crore
Face Value
Rs. 10
Market Lot
66
Listing
BSE,NSE
Industry
Retail
Maximum Retail Subscription
14 lots/Rs. 1,98,660
Registrar
Karvy Computershare

Issue details:

·         Offer for sale by shareholders: 17,35,000 shares
·         Fresh issue : 27,61,000 shares

Industry Profile:
The structure of Indian retail industry

The rising apparel segment
Indian apparel industry is growing at a CAGR of 9.7 % and  FY 12  figure is supposed to touch Rs. 2,000 billion mark. Factors like rising per capita disposable income, urbanization and rising consumer awareness have contributed to this growth.

Indian apparel industry comprises of two segments- 

     (1)    RTS (ready to stitch) : 30 %
     (2)     RTW(ready to wear): 70 %

The continuous decline seen in RTS segment augurs well for the RTW segment.









Company profile:


V-Mart retail is a New Delhi based retail player offering apparel, general merchandise and Kirana items with a predominant focus on Tier-2 and Tier-3 cities in Northern, western and eastern parts of India. V-Mart currently owns and operates 59 stores spread across 51 cities in 10 states & union territories.
V-mart boasts a total store space of 4.82 lakh sq. ft. with its presence in states like New Delhi, Gujarat, UP, Bihar, Punjab, Chandigarh, Haryana, J&K, Rajasthan and MP.

Strengths

·         V-mart has been a pioneer in setting stores in smaller cities and is supposed to get benefitted from the rising urbanization
·         V-mart has ERP(enterprise resource planning) based supply chain system that leads to efficient inventory and working capital management
·         V-mart has got strong & robust IT infrastructure with a strong emphasis on MIS(management information system)
·         V-mart is  a ‘one stop shop’ for a family and offers a  diversified range of products catering needs of a family

Concerns

·         The retail industry is highly capital-intensive and changing trends in fashion makes the company vulnerable to fierce competition.
·         V-Mart’s operations are mainly restricted to tier-2 and tier-3 cities and these are not lucrative markets in terms of the consumption in comparison to Tier-1 cities

Objects of the issue

·         To open 60 new stores : 69.7 crore
·         Expansion of distribution centers: 4.38 crore
·         Working capital requirement : 10 crore
·         General corporate purposes & issue expenses: NA

Financials

The uptrend in apparel sales

 # All calculations at the upper price band
# All calculations have been done using post-equity outstanding shares unless mentioned otherwise
# Debt-equity ratios are exhaustive

Parameter
FY 12
Post issue Outstanding shares
1,79,58,778
Earnings per share (EPS)
Rs. 5.9
Book Value
Rs. 30.2
P/E
36.4
P/B
7.1
4-year profit CAGR
32%
PEG
1.1
Operating profit margin (OPM) %
10 %
Net profit margin (NPM)
4%
Return on Equity
19.6%
Debt/Equity Ratio (pre-equity) #
2.9
Debt/equity Ratio (Post-equity)#
1.77
EV/EBITDA
16.3

Comparison with peers

# Peer data as per moneycontrol site as on 1/2/2013 for FY 12 unless mentioned otherwise

Company
P/E
NPM
ROE
M-cap
Debt/Equity
V-Mart
36.4
4%
19.6%
Rs. 386 crore
1.77
Pantaloon Retail
20.25
1.81 % ##
2.9 % ##
Rs. 5692 crore
.82 ##
Shoppers Stop
96.05
3.12 %
9.75 %
Rs. 3623 crore
.33
Trent
68.79
4.92 %
3.51%
Rs. 3811 crore
.19


## FY 11 figure

Inference

As evident from the above table V-mart is a much smaller player of the retail industry and thus ‘comparison to peers’ is quite meaningless . In the backdrop of the debacle of v2 reatil (erstwhile known as Vishal Retail   and promoters of both are blood related) this issue appears as a spooking one and hence there was no need of digging deeper into the financials

This issue is being floated mainly to provide an exit rule to the selling stake holder – Naman Finance & Investment Private Ltd. (an AV Birla group investment arm) besides opening new stores and for boosting the working capital. For a smaller company like this a price-to-earnings multiple of 36.4 seems expensive.
Retail industry works on a razor thin margin and players are hit hard in case of a global turmoil (V-Mart’s FY 09 results vouch for the same).
 To cut a long story short, risk-averse value investors should better overlook this issue and in future too they should not be swayed by any post-listing price rise (as the share price of such issues can be easily rigged).

    Disclaimer

Analysis is for the information purpose only. Though due care and caution have been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of this report.



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