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March 26, 2008| Retail

Initiating Coverage

Vishal Retail (VISRET)
First mover advantage…
Vishal Retail, a value retailer with a focus on Tier 2 and Tier 3 cities, is expanding aggressively. The expansion will boost its retail space to 5.1 million sq ft by FY10 from 1.3 million sq ft in FY07. The company plans to increase its penetration throughout the country over the next few years. We initiate coverage on the company with an OUTPERFORMER rating.

Current price Rs 700 Potential upside 46.6%

Target price Rs 1026 Time Frame 15-18 months


Analyst’s Name Prerna Jhunjhunwala

Rapid expansion to increase reach, provide volume growth
The expansion plan of Vishal Retail is very aggressive. It increased its retail space from 88,700 sq.ft. in FY03 to 1.3 mn sq.ft. in FY07, CAGR of 94%. We expect the retail space to increase to 5.1 mn sq. ft. by FY10, at a CAGR of 59% over FY07-FY10E. This expansion will increase its reach and provide volume growth, whereby revenue is expected to increase four-fold. Sales & EPS trend
3000 2500 2000 1500 1000 500 0 FY07 FY08E FY09E FY10E EPS (Rs.) Net Sales (Rs. Cr) 60 50 40 30 20 10 0

Focus on Tier-2 and Tier-3 cities
The company targets Tier-2 and Tier-3 cities where there is little or no presence of organised retail players. Even in Tier-1 cities, it is present on the outskirts of the city. This enables the company to enjoy first mover advantage and earn better margins than its peers. Also, the rentals in such cities are low.

Increasing margins
The company’s operating margin is higher than to peers due to owned manufacturing capacity of apparel, higher proportion of apparel in the sales mix (60%), sales of private labels only in apparels, high share of private labels in the sales mix, efficient supply chain and distribution system and low rentals. We expect the operating margin to increase to 12.49% in FY10 from 11.12% in FY07 despite the ongoing capex.

Stock metrics Bloomberg Reuters Face Value (Rs.) Promoters holding (%) Market Cap 52 Week H/L Sensex Average volume

VISH IN VIRL.BO 10 63.93 16086 1001/423 16256 27249

We expect the net sales and earnings of the company to grow at a CAGR of 63.7% and 61.1% respectively during FY07-FY10E. At the current price of Rs. 700, the stock trades at PER of 12.27x its FY10 earnings. We value Vishal Retail at a target price of Rs. 1026, based on 18x FY10 PER, giving a potential upside of 46.6%.

Comparative return metrics Stock return 3M 6M Pantaloon -42.38 -26.34 Shoppers’ Stop -25.50 -28.49 Vishal Retail -16.99 -4.95

12M -5.16 -37.15 NA

Exhibit 1: Key Financials Year to March 31 Net Profit Shares in issue (crore) EPS (Rs) P/E (x) Price/Book (x) EV/EBIDTA RoNW (%) RoCE (%)

Price Trend FY07 24.98 1.83 13.63 51.34 10.12 25.27 19.71 14.61 FY08E 44.20 2.24 19.73 35.47 5.58 17.27 15.73 15.26 FY09E 78.58 2.24 35.08 19.95 4.36 11.53 21.86 16.30 FY10E 127.77 2.24 57.05 12.27 3.22 8.68 26.22 17.82
1200 1000 800 600 400 200 0

Target Price

Absolute Buy

Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08

Source: ICICIdirect Research ICICIdirect | Equity Research


Company Background
Vishal Retail Ltd, incorporated in 2001 by Mr. Ram Chandra Agarwal, is in the business of value retailing with focus on Tier 2 and Tier 3 cities. At present, the company operates 92 stores under the name “Vishal Megamart” with a retail space of 2 mn sq.ft. The company sells over 100,000 stock keeping units (SKUs) across categories of apparels (63% of sales in FY07), non-apparels (22%) and FMCG (15%). In order to strengthen its operations, it has set up 2 manufacturing facilities with a total capacity of 3 mn pieces. To ensure strong logistics support, the company established 29 warehouses in 8 cities with total space of1.05 mn sq.ft. and a fleet of trucks for transportation.

Share holding pattern Shareholder Promoters Institutional investors Other investors General public

Percentage holding 63.93 12.30 17.33 6.44

Promoter & Institutional holding trend (%)
80 60 40 20 0 Q2 FY08 Promoters Q3 FY08 Foreign

Exhibit 2: Business Model

Manufacturing Capacity

Strong Logistics




8 distribution centres, 29 warehouses Fleet of trucks (>50)

Apparel Non-apparel FMCG

Focus on Tier-2 and Tier-3 Cities Tier-1 (18 stores) Tier-2 (3 stores) Tier-3 (61 stores)

Apparel FMCG

Source: ICICIdirect Research


in FY03 to 1.1 mn sq. Its retail space increased from 88. however skewed towards northern region (61% in FY07).0 0. Exhibit 3: Increasing space with pan India presence 6. of Stores 75 60 45 30 15 0 16 9 1 6 FY05 19 2 5 FY06 Tier 1 Source: Company 78% of the stores in Tier-2 and Tier-3 cities 82 55 61 43 3 9 2Q FY08 Tier 3 3 18 3Q FY08 49 26 40 3 6 FY07 Tier 2 3|Page . by FY10. 59% CAGR FY07 Source: Company.1 mn sq. 78% of the company’s 82 stores are in Tier-2 and Tier-3 cities. Exhibit 4: Increasing presence in Tier 3 cities 90 No.ft.0 3.ft. in FY07. Ft. 4. More stores are expected to come in the southern and eastern region in the next few years. We expect the retail space to increase to 5. As at 3Q FY08.ft. we believe the sales of the company will increase at CAGR of 63. ft.66% over FY07-FY10 with a scattered pan-India presence. in FY10E from 1.3 mn sq.0 1. This enables the company to overcome competition to some extent due to its first mover advantage (as competitors have relatively less space in tier-2 and tier-3 cities) and helps to lower rental cost.0 M illion S q. a CAGR of 94%.INVESTMENT RATIONALE Rapid expansion to give company pan India presence Vishal Retail is on an expansion spree. With these initiatives.0 5.0 FY05 FY06 FY07 FY08E FY09E FY10E West 15% East 20% North 61% South 4% Retail space expected to increase to 5. at 59% CAGR over the period FY07-FY10.ft. The company has pan-India presence. in FY07. the company opens retail outlets on the outskirts.0 2. The company plans to maintain the ratio of Tier-2 and Tier-3 to Tier-1 cities at 80:20. Its target market includes people with middle income and lower income levels. rather than the prime area. In Tier-1 cities.3 mn sq. The company’s strategy is to increase to new geographies and in cities where it already has a presence. ICICIdirect Research Focus on Tier 2 and Tier 3 cities – first mover advantage Vishal Retail targets cities with urban population of 1 million people or above or can be classified as Tier-2 and Tier-3 cities.700 sq.

000 SKUs. the footfalls in the stores have increased. due to its product nature. With over 100.600 persons per day in FY03.2% in FY07) is the largest contributor to sales. attract more footfalls and maintain margins.Apparels FY09E FMCG FY10E 85% 3% 12% 9% 20% 15% 22% Enhanced product categories from apparels to include non-apparels and FMCG 20% 20% 23% 22% 25% 25% 71% 63% 60% 55% 50% Source: Company. The company also maintains a fleet of more than 50 trucks for transportation of products to distribution centres and from distribution centres to retail stores. women and men. the average footfall per day increased to 150. ICICIdirect Research Due to this change in product mix. As a result. Gradually. FMCG. Exhibit 5: Contribution of non-apparels and FMCG to increase 100% 80% 60% 40% 20% 0% FY05 FY06 FY07 FY08E Apparels Non.Strong logistics and distribution network As on 3QFY08. It also reduces the seasonality of sales as these are generally daily-use products. Since the presence in the south is very small. Also the company has 4|Page . The company has 8 distribution centres in different zones. Consequently the share of non-apparels and FMCG collectively is expected to increase to 50%. At the end of Q3 FY08. where all the products are stored. We expect the share of apparels to reduce to 50% over the next two years. the footfalls have increased to 89. it maintains less space for storage in the retail stores enabling better utilization of space. apparel (63. is a footfall driver. We believe that the strong logistics and distribution network will enable the company to keep transportation cost in control and improve inventory management.05 million sq ft. it expanded its product portfolio to include non-apparels and FMCG products.829 persons per day as compared to 8. It also uses the services of low cost logistics service providers to deliver products on time and optimizes transportation cost. The change in the product mix will enable the company to reduce seasonality. Over the past 5 years. Changing product mix Vishal Retail commenced operations with the retailing of readymade apparels for kids. Majority of the warehouses are located in northern region due to its concentration (approximately 62% of sales in FY07) in the concerned zone. However this mix is expected to change with the increase in the variety of products. Vishal Retail operates 29 warehouses in 8 cities with a space of 1.968. the requirement from the southern India is catered by the distribution centre in west.

In FY06. currently operating at 40% utilization. The Gurgaon manufacturing facility began operations in 2004 and currently operates at 80% utilization. Exhibit 6: Increasing footfalls 160 Avg No. farsans.7% to sales. The in-house manufactured products enable improvement in operating margin. The company also makes FMCG products. ketch-ups. through a bakery in Gurgaon..5 mn pieces each. the products manufactured by company contributed 9. We expect the share of manufactured products to reduce further due to further addition in categories going forward. like namkins. commenced operations in September 2007. Exhibit 7: Share of manufactured products 100% 80% % to sales 60% 100% 40% 20% 0% FY03 Source: Company 74% 71% 83% 90% Share of manufactured products to decline due to further addition in product categories 26% 29% 17% 10% FY04 FY05 Company Manufactured FY06 FY07 Products Traded 5|Page . This contribution is decreasing every year due to inclusion of other categories in the product mix. per day in '000 140 120 100 80 60 40 20 0 FY03 Source: Company FY04 FY05 FY06 FY07 3Q FY08 In-house manufacturing help sustain margin Vishal Retail operates two manufacturing facilities with a capacity of 1. The Dehradun facility. etc.been able to maintain the conversion ratio at approximately 45%. which is a healthy sign as the number of stores has increased drastically in the current fiscal.

68% of total sales (i. In FY08. apparel. consumer durables. In tier-1 cities. all apparel sales). the decision to set up a private equity fund also goes hand in hand with the company’s policy to promote private brands. lifestyle and home are expected to be given the foremost preference. 31 per sq. In FY07. We believe increase in the share of private labels will enable the company to sustain the margins. IT. the company opens stores only in the outskirts of the city. We will include them in our estimates once some concrete development takes place. private label and national brands.66 Source: ICICIdirect Research % to sales 5. the company prefers opening stores in readymade buildings rather than malls to reduce rental cost. Besides. leading to an increase in the share of private label at 15% at the end of 3Q FY08. we have not considered them in our estimates. the share of private labels stood at 9. The company aims at increasing the share of private labels to 25% going forward. All the formats will be categorized into separate divisions and will be run by different CEOs. All the apparels sold in the stores are private labels. the company introduced private label in FMCG products as well. as at 3Q FY08.36% 7.44% 7.32 Pantaloon 47.ft. Moreover. restaurants. where the rental cost is much lower than the prime area. footwear. Of the many strategies taken into consideration. Since these initiatives are at nascent stage. where the rental cost is low. National brand apparels are not sold in the Vishal Retail stores. Foraying into real estate sector to develop 1 crore sq. Exhibit 8: Lowest Rental Cost in FY07 Particulars Rent per sq.Increase in private labels share to improve profitability The company sells two types of products. All these initiatives enable the company withstand intense competition. Private labels share expected to increase from 15% to 25% Rental cost lowest in the industry The rental cost of Vishal Retail is the lowest in the industry at Rs. This is due to the company strategy of opening stores in Tier-2 and Tier-3 cities. Vishal Retail 30. specialty formats like convenience.ft.e.26 Shoppers' Stop 47. The company is also planning to set up a private equity fund which will buy minority stakes in consumer product companies that will sell their goods through Vishal stores. viz. area in next 3 years Setting up a private equity fund Foraying into cash-$-carry business and specialty formats 6|Page . It is planning to acquire 1 crore sq ft area in next three years which would partly be used for expanding the retail businesses and rest for real estate purposes. We do not see much increase in the rental cost going forward due to this strategy. The company also plans to foray into cash-&-carry business in about a year. The private label products earn better margins as compared to national brands. The main objective is to sell a variety of brands through Vishal Retail and acquire a share in their profits.ft.51% Venturing into new areas The company is foraying into real estate sector either in the second half of the current year or early next year.

Business Development S. He has been instrumental in expanding the business from an apparel store in Kolkata to 82 value retail stores with panIndia presence. The management team has a pool of talented professionals with right mix of working experience.Legal & Secretarial 7|Page .Zonal Head .Retail Head .IT Head .Accounts Source: Company Category Head Merchandise Head Chief Operating Officer Head . Exhibit 9: Organisation Structure R. Agarwal Chairman & MD Board of Directors Head . Ram Chandra Agarwal. a first generation entrepreneur. C. The detailed organization structure enables the management to trace the smallest possible responsibility and thereby facilitate proper internal control.SCM Head .Admin & HR Head . Agarwal Whole Time Director Head .Strong management with proven execution capability Vishal Retail has been established by Mr. K.

FMCG Head . production and retailing w. procurement. production and retailing with respect to the accessories business Management. CA B. production and retailing with respect to the ladies’ apparel business Management and supervision of the supply chain and the procurement.Com. procurement.A 38 33 Jun-03 Aug-02 B.Accessories Head – Kids’ Apparel Head .t. production and retailing with respect to the FMCG business supervision of the formulation and implantation of MIS and active participation in management of the legal.Men's Apparel Responsibility Looking after the day to day management of the operations as well as IT department Management and supervision of the supply chain and the procurement. production and retailing with respect to the kid’s apparel business Management and supervision of the supply chain and the procurement.Com 30 32 Aug-02 Apr-03 Sunil Hirawat Deepak Sharma Pawan Agarwal Ramesh Agarwal Amit Kumar Chaturvedi Arvind Khemka Arun Gupta Ambeek Khemka.Ladies Apparel B. CA 46 May-03 B.Exhibit 10: Key Managerial Employees Educational Qualification B.Com. devising new business strategies and other business ventures Overseeing the national retail operations Age Joined Vishal Retail Total Experience Ritesh Rathi Manmohan Agarwal Dipu Gupta 31 Sep-06 6 years 10 years in the retail industry 10 years in the retail industry Over 6 years in the retail industry 6 years in the retail industry 4 years in the retail industry 20 years in the retail industry 7 years in the retail industry 5 years in the retail industry 5 years as company Secretary B.Projects Company Secretary President .Retail B. production and retailing with respect to the men’s apparel business Management and supervision of the supply chain and the procurement. Chartered Accountant Name Designation Chief Operating Officer Head – Supply Chain Management & Men’s Ethnic Apparel Head .Com.Com B.Com B.r.Com MBA 35 35 Feb-07 May-07 15 years 11 years including 5 years in the retail industry Source: Company 8|Page . accounts and finance divisions Execution and establishment of projects in new locations Ensure compliance with all legal and regulatory requirements for the smooth functioning of the business Identification of new sites for company’s showrooms.Com B.Finance and Accounts Head . CS 31 44 32 May-03 Oct-05 Oct-05 B. the men’s ethnic apparel Management.Com.Business Development & Corporate Affairs Manager .A 29 Jun-03 Head . Mukesh Tyagi Head .

etc. are entering the industry to tap the huge growth potential opportunities. Large Indian players like Reliance Industries. ICICIdirect Research 7% 6% 5% 4% 3% 2% 1% 0% As a % of net sales 9|Page . Moreover. Execution risk We foresee execution risk increasing as the company grows in size. the availability of skilled manpower is declining and attrition rates are increasing throughout the industry. Metro. etc.KEY CONCERNS Increasing competition The organized retail industry is on a high growth trajectory. The presence of large number of graduates and under-graduates in the company increases the risk of attrition at store level. We foresee an increase in the employee cost going forward due to company’s efforts to attract and retain the employees. Vishal Retail. Tesco. We foresee a slowdown in the pace of rollouts after 2-3 years due to factors such as availability of space at right price. This will result in tough competition for Vishal Retail as these competitors have deep pockets. Cr 120 90 60 30 0 FY05 FY06 FY07 FY08E FY09E FY10E Employee Cost Source: Company. Although the company is excellent at selecting the location of stores and implementing at rapid pace. are eyeing the Indian retail industry. all the players will be targeting Tier-2 and Tier-3 cities. the requirement of skilled manpower is increasing. intense competition and sustainability of profits of stores. This is despite its cost reduction practices (best margin in the industry) and first mover advantage (presence in areas where no other organized player is present). Bharti Airtel. posing a threat to survival. is more vulnerable to this risk as the price conscious consumers tend to shift from one retailer to another. With increasing number of players entering. At the same time. the competition is intensifying leading to reduction in margin. present in the value retailing segment. Employee retention Due to intense competition. as Tier-1 cities are saturating with time. Aditya Birla Group. the shift of focus of large retailers to tier-2 and tier-3 cities may pose a threat to availability of space at right location and at right price. Even international players like Walmart. Exhibit 11: Increasing employee cost 210 180 150 Rs.

per sq. we expect the inventory turnover to decline for atleast 3 years. ft. This results in high inventory requirement at the distribution centres and the transit period of goods is nearly 3-4 days.61 FY07 1978.05 2074.Inventory management The inventory requirement of the company is increasing year-on-year as it is in growth phase. Vishal Retail Pantaloon Shoppers' Stop FY06 1440. Also the company is expanding in all the zones of the country. This results in high inventory requirement which takes time to convert into sales.29 977. but also for new stores and for stores which have not yet started.60 1816. With the expansion going on. the inventory turnover may increase resulting in faster conversion of inventory into sales. Since the company is expanding at a very rapid pace. Exhibit 12: Inventory turnover to decline further 6 5 4 times(x) 3 2 1 0 FY05 Source: ICICIdirect Research Inventory Rs.58 FY06 FY07 FY08E FY09E FY10E 10 | P a g e . whereas its warehouses are located at few selected cities. it has to keep inventory not only for old stores. As the pace of expansion slows down after 3 years.59 740.

66% CAGR CAGR (%) 63.98 2287. 49.ft. Exhibit 13: Impressive sales growth FY07 FY10 Vishal Retail 602.ft. The net profit margin is expected to increase at relatively low pace.66% 55. These initiatives enable the company to earn best operating and net profit margin as compared to its peers like Shoppers’ Stop and Pantaloon. 2641. to decline from Rs.73 12127. Of this. by 80 bps.31% Margins to improve further The margins of the company are increasing due to its distinct strategy. among the highest in the industry. We have assumed the revenue per sq.ft. low rentals.ft. 6045 in FY10.66%.96 crore in FY03 to Rs. due to high interest cost.ft.32% 40. etc. Exhibit 14: Increasing EBITDA and net profit margin EBITDA Margin 15 10 % 5 0 FY06 Vishal Retail FY07 FY08E Pantaloon FY09E FY10E Shoppers' Stop % 6 5 4 3 2 1 0 FY06 Vishal Retail FY07 FY08E Pantaloon FY09E FY10E Shoppers' Stop Net Profit Margin EBITDA and net profit margin better than the peers Source: ICICIdirect Research. an addition of 3. enables it to keep the costs low.36%. cash payment to vendors for cash discount. 6687 in FY07 to Rs. due to increase in the share of FMCG products and increase in competition going forward. This increase has been due to rapid expansion in retail space (from 88.FINANCIALS Expansion to boost sales.65 2641.06 mn sq.700 sq. Reuters Revenue to increase at 63. in FY07) and increase in the product categories (non-apparel and FMCG). by FY10.45 cr in FY07.87% in FY10 as compared to 11. We believe the net sales of the company will increase to Rs. Reuters 11 | P a g e . an increase of 137 bps over the 3 years. 602. The company’s cost efficient practices like own manufacturing facilities.3 mn sq.13 Source: ICICIdirect Research. more than 90% of stores are operating in Tier-3 cities where the competition from large players like Pantaloon is very less or almost none.73 crore translating into a CAGR of 63. a CAGR of 86.8 mn sq. Approximately 80% of the stores of the company are operating in Tier-2 and Tier-3 cities.73 Pantaloon 3236. highest growth expected among peers The net sales of the company increased from Rs. in FY03 to 1. This result in less price competition and the consumers have only one point of purchase.30 Shoppers' Stop 827. We expect the EBITDA margin to increase to 12. We expect the company to increase the total retail space to 5.50% in FY07. efficient supply chain management.

Return ratios.22% and 17.82% in FY10 as compared to 19. The return ratios of the company are better than its peers like Pantaloon Retail and Shoppers Stop.71% and 14. This is due to the company’s initiatives to reduce costs and increase margins by augmenting the share of private labels in the product mix. Exhibit 15: Return ratios 30 25 20 15 10 5 0 FY06 Vishal Retail FY07 % ROE 20 15 10 5 0 % ROCE FY08E Pantaloon FY09E FY10E Shoppers' Stop FY06 Vishal Retail FY07 FY08E Pantaloon FY09E FY10E Shoppers' Stop Source: ICICIdirect Research.61% in FY07. Reuters 12 | P a g e . among the best in the industry The company is expected to earn ROE and ROCE of 26.

Vishal Retail is on an expansion spree since its inception. strong logistics and distribution network. In spite of aggressive expansion. We expect the retail space to increase to 5.78 Highest profitability and growth expected among peers 13 | P a g e . Its focus on Tier 2 and Tier 3 cities enables it to keep costs under control due to low rentals and first mover advantage in most of the cities. a CAGR of 59% over FY07-FY10E.00 21.40 5. The company may dilute its equity going forward to fund its expansion plans and new initiatives.00 Shoppers Stop FY10E 2287.38 1394.01 6241.82 EPS (Rs) 57. Reuters Pantaloon Retail FY10E 12127.80 14.80 CMP (Rs. It enjoys better profitability than its peers due to its cost reduction measures such as manufacturing facility.05 414. ownership of fleet of trucks. At the current price of Rs. we value Vishal Retail at a target price of Rs.78 0.05 Mcap (Rs cr) 1568.25 6.38 13.67 9.13 6.59 EV/Sales 1.00 400. sourcing from local suppliers. ft in FY10 from 1.24 0.VALUATIONS Vishal Retail is a retailer in the value segment. the stock trades at 12.00 P/E (x) 12.51 0.84 NPM (%) 26. the revenue of the company is expected to be one-sixth of that of Pantaloon Retail.43 13. in FY07.50 19. Taking these into consideration. 700.) 700.50 0.00 Source: ICICIdirect Research. Exhibit 16: Peer Valuation Peer Valuation Vishal Retail Year End FY10E Net Sales (Rs. The organized retail industry is at a nascent stage in India.82 2. Cr) 2641.1 mn sq.6%.20 Mcap/Sales (x) 0. Value retailing is the fastest growing model in the retail industry as majority of the population in the country is middle class or lower middle class. ft.22 RONW (%) ROCE (%) 17. 1026 based on 18x FY10 PER.73 EBITDA Margin (%) 12.62 9.27 PEG (x) 0.82 0. the leader in retail industry in the country.3 mn sq.87 4. which we have not incorporated in our estimates. We expect value retailing to gain further substance in the industry.99 2.30 6.00 27.61 0. giving a potential upside of 46.00 EV/EBDITA (x) 8. etc.27x its FY10 earnings.

9 36.8 62.97% 14.12% 25.0 67.55% 30.9% 4.32% 24.42% 25.3 4.15% FY08E 1092.50% 108.00% 127.6 10.8 6.32% 113.9 81.00% 78.0 11.1 6.00% 967.50% 229.2 76.0 100.49% 10.9 184.50% 15.3 54.87% 58.6 7.4 12.2 5.04% FY09E 1831.54% 1037.76% 37.30% 380.12% 2.6 69.2 36.93% 346.1 43.0 12.7 44.08% 61.59% 171.3 11.7 108.4 281.29% (Rs.8 106.5 125.88% 64.3 36.7 21.7 9.50% 2311.52% 14.71% 44.4 42.6 43.3 6.5 5.8 39.4 4.86% 535.3% 4.9 199.6 42.00% 44.6 10.48% 7.28% 1490.2 4.5 21.0 8.7 4.7 330.5 12.10% 541.9 122. Crore) FY10E 2641.2 1151.6 20.01% 131.20% 78.9 36.7 6.8% 4.84% Operating margin expected to increase due to increasing share of private labels and cost efficient practices 14 | P a g e .5 228.3 468.0 220.6 67.0 12.4 11.48% 43.6% 4.80% 1611.8 20.9 793.54% 27.0 340.0 132.56% 71.66% 81.FINANCIAL SUMMARY Profit & Loss Y/E March 31 Net Sales Growth (%) Cost of Goods Sold Gross Profit Gross Profit Margin (%) Employee % to NS Manufacturing and Administration % to NS Selling and Distribution % to NS Total Expenditure Operating Profits Operating Profit Margin (%) Other Income EBITDA EBITDA Margin (%) Depreciation EBIT EBIT Margin (%) Interest PBT PBT Margin (%) Taxes Effective Tax Rate (%) Profit After Tax Growth (%) PAT Margin (%) FY07 602.35% 624.3 256.0 12.90% 49.6 77.3 69.5 6.02% 8.

72 26.52 834.44 126.50 28.42 303.21 1.40 464.40 258.70 67.51 773.79 531.00 1.66 0.48 219.07 FY09E 22.88 153.00 20.40 102.33 108.51 550.82 397.18 702.62 371.08 263.76 243.12 15.84 1458.28 1092.40 337.77 132.07 0.15 0.32 399.97 634.00 750.98 131.08 95.46 0.89 487.84 25.61 702.15 9.15 58. Crore) FY10E 22.48 317.32 (Rs.17 190.51 Equity dilution expected in FY09.88 1192.94 417.33 265.77 107.64 1138.09 249.17 5.95 3.Balance Sheet Y/E March 31 Equity Reserves and Surplus Total Shareholders Funds Total Loan Funds Net Deferred Tax Liability Total Capital Employed Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Inventory Debtors Cash and bank Balance Loans and Advances Other Current Assets Gross Current Assets Gross Current Liabilities Net Current Assets Total Assets FY07 18.04 8.00 450.47 1025.98 51.25 330.45 1589.77 FY08E 22.01 49.11 359.07 221.52 170.06 1.00 0.66 1138.30 42.00 0.00 1070.54 280.63 1589.60 9.80 371. but not factored in the estimates 15 | P a g e .

80 0.52 0.29 14.90 61.50 42.77 -90.48 16 | P a g e .00 -93.27 15.80 0.06 109.13 0.88 0.75 37.56 0.00 28.48 -95.69 204.56 2.00 339.85 0.00 -88.94 0.00 355. Crore) FY10E 199.81 -167.94 237.50 -95.62 0.15 FY08E 69.21 -88.79 0.10 27.00 188.07 25.48 20.00 -131.83 15.10 0.18 -95.00 132.Cash Flow Y/E March 31 Net profit before tax Depreciation Interest Others Operating Profit before WC Changes WC Changes Cash Generated from Operations Direct Taxes Paid Prior Period Adjustments Cash from Operating activities (A) Purchases of fixed assets and Cap WIP Others Cash from Investing Activities (B) Proceeds from Issue of Equity Shares Net loans Interest Paid Cash from Financing Activities ( C ) Net Increase in Cash and Cash Equivalents (A+B+C) Cash at Beginning Cash at End FY07 39.48 (Rs.43 -240.00 -151.00 -102.53 -318.43 -81.78 43.00 -130.36 -14.49 -8.98 28.16 -12.00 319.10 0.29 15.15 42.08 29.00 228.67 71.89 8.98 -367.00 -177.62 247.21 -61.69 -151.25 -40.79 -27.76 -177.97 174.85 -108.47 6.85 293.75 -37.98 FY09E 122.06 0.37 -7.39 81.64 58.80 -65.42 -22.

49 2. (Rs Crore) EV (Rs Crore) Valuations (x) P/E P / BV Mcap / Sales EV / EBIDTA EV / Sales Du Pont Analysis PAT/PBT PBT/EBIT EBIT/Sales Sales/Assets Assets/Equity FY07 11.54 0.10 24.38 31.73 125.61 3.38 5.64 0.75 0.56 83.71% 14.12 8.05 217.12 1.23 17.26% 21.96 58.02% 4.94 5.15% FY08E 11.07 21.92 1791.62 2.84% 19.81 119.13 0.72 6.12 1.64 0.92 1.02 3.73% 15.53 1.98 54.81 40.68 1.23 35.29% FY10E 12.93 3.52 0.84 2536.12 99.43 31.64 0.27 1.03 13.08 0.51 54.04% FY09E 12.Ratio Analysis Y/E March 31 Margins (%) Operating PAT Asset based ratios (%) RONW / ROE ROCE / ROI Gearing (x) Debt / Equity Liquidity Ratios (x) Current Ratio Quick Ratio Per Share (Rs) Earnings Book Value Cash EPS Turnover Inventory (days) Debtor (days) Creditor (days) Market Cap.68 11.66 3.12% 4.48% 4.18 1791.68 57.56 21.64 0.80 4.17 0.82% 1.17 4.06 116.73 0.98 22.22% 17.24 4.48 4.59 0.16 1791.84 2863.98 25.63 69.54 6.27 2.86% 16.68 11.39 14.52 125.94 1466 1694.30% 26.08 22.50 0.56 2.61% 15.93 0.15 2.13 1.68 83.26 17 | P a g e .06 20.38 3.17 21.49% 4.08 160.12 1.61 0.98 19.57 0.84 2166.

of which 80% are run by small family businesses which use only household labour. Consequently. in the Global Retail Development Index (GRDI) 2007. India has one of the highest retail densities in the world at 6% (12 million retail shops for about 209 million households). Exhibit 18: Window opportunity analysis. CAGR of 37%. the organized retail industry is expected to grow from US$ 12 bn in 2007 to US$ 282 bn in 2017.7%. Retailing in India is highly fragmented and organised retailing is at a very nascent stage. Exhibit 17: Increasing penetration of organized retail 1200 1000 800 US$ Bn 600 400 200 0 2007 Source: KSA Technopak Penetration of organized retail expected to increase to 28% by 2017 28% 30% 25% 4% 5% 7% 11% 14% 16% 20% 15% 10% 5% 0% 2008 2009 2010 2011 2012 2017 Retail industry Penetration India as a destination of retail industry India has been ranked first. During this period the penetration of the organised retail industry is estimated to increase from 4% in 2007 to 28% in 2017. It is amongst the fastest growing sector in India. It ranks the top 30 emerging countries for retail development using 25 macroeconomic and retail specific variables. for the three consecutive years. According to KSA Technopak estimates.ANNEXURE: RETAIL INDUSTRY Organised retail expected to grow at 37% CAGR over 2007-17 Retailing is the world’s largest private industry amounting to around US$ 7 trillion in sales. the retail industry is expected to grow from US$ 336 bn in 2007 to US$ 1011 bn in 2017. CAGR of 11. GRDI 2007 Country 2007 Rank India Russia China Vietnam Ukraine Chile Latvia Malaysia Mexico Saudi Arabia Source: AT Kearney India tops as the retail destination for past 3 consecutive years 2006 Rank 1 2 5 3 4 6 7 14 19 17 1 2 3 4 5 6 7 8 9 10 18 | P a g e . There are about 12 mn outlets in the country. This index identifies the window of opportunities to help retailers make strategic investments in new exciting markets.

It is also the perfect time for the existing players to undergo aggressive expansion. Beverages and Tobacco 195 Personal Care 15 Apparel 21 Footwear 5 Furnishings 4 IT & Consumer Durables 14 Furniture 9 Jewellery & Watches 15 Medical Care & Health Services 8 Recreation 2 Others 12 Total 300 Source: Images Retail India 2007 % Share (2006) 65% 5% 7% 2% 1% 5% 3% 5% 3% 0.60% 4% 100% Market Size US$ bn 2010 256 23 33 7 7 24 16 24 12 3 23 427 % Growth (2005-10) 7. According to the National Sample Survey Organisation (NSSO) 60th round. Approximately 63% of population is in the working age group of 15-64 years. Exhibit 20: Share of Population by Age group 65+ Age in Years 8% 5% 69% 69% of population in 2026 expected to be in working group 15-64 23% 32% 0% 20% 2006 40% 2026 60% 63% 0-14 80% Source: Census of India 2001 estimates 19 | P a g e . According to Census of India.40% % Share 2015 54% 5% 8% 2% 2% 7% 4% 6% 3% 1% 8% 100% Growth Drivers: Favorable demographics The demographic proposition of the country is shifting year on year. its penetration into the organised retail is only 1%. i. it is expected to increase to 69% in 2026. The contribution of working population (15-64 years) is growing. This means that next 3-4 years is the best time for the foreign retailers and other Indian corporate retailers to enter into India. However.00% 11% 11% 11% 15% 15% 15% 12% 12% 17% 18% 9% % Share (2010) 60% 5% 8% 2% 2% 6% 4% 6% 3% 1% 5% 100% Market Size US$ bn (2015) 342 35 50 11 12 43 28 37 21 7 53 637 % Growth (2010-15) 6% 9% 9% 9% 12% 12% 12% 9% 12% 15% 18% 8.e. ready for modern retail Food and apparel – biggest opportunity Food and grocery is the largest vertical in the retail industry with 74. India has entered the peaking stage. India entered peaking stage.According to the index. Exhibit 19: Changing consumption pattern Market Size US$ bn (2006) Particulars Food. This will increase the overall purchasing power of the country propelling growth in the retail industry. This explains the tremendous growth opportunity for this vertical in the organised retail industry. 54%of the rural and 42 % of the urban population expenditure was on food. it is developing quickly and is ready for modern retail.4% market share in the retail industry.

middle class will expand to the point where it will command 60% of the total consumption by 2025. According to MGI. CAGR of 5. increasing household income will contribute 80% to the consumption growth. India will transform itself into a nation of strivers and seekers with 128 million households i. in '000 200 150 100 50 0 1985 1990 1995 2000 2005 2015 2025 Increasing household income to contribute 80% of consumption growth CAGR 5. Exhibit 21: Growing Average household income 350 300 250 Rs. ICICIdirect Research 20 | P a g e .896 by 2025. the consumers will have more money to spend resulting in higher consumption.200000-500000) Globals (>Rs.6% Source: MGI. 500000-1000000) Source: MGI.3% CAGR 3. Indian income is expected to triple over the next two decades. 318. 1000000) 206.744 in 2005. 5% of the population. Exhibit 22: Growing middle class No .113. According to MGI.9 280.0 Middle class 2015 2025 Aspirers (Rs. By 2025.Increasing income According to MGI.3%. India today remains dominated by people living in the deprived and aspirer classes. the middle class currently constitutes just 13 million households i.e. 56470 in 1995 to Rs.e. With the rise in the disposable income. CAGR of 3. Average real household disposable income has increased from Rs.90000-200000) Strivers (Rs. 113. It is expected to grow from Rs. According to MGI.744 in 2005 to Rs. of Ho u seh o lds (M n ) 300 250 200 150 100 50 0 2005 Deprived (<90000) Seekers (Rs.6%.5 244. ICICIdirect Research Rising middle income group Despite significant progress. 41% of the population in the middle class.

1000000) Source: McKinsey Global Institute (MGI) 21 | P a g e .1x middle class 1985 Deprived (<90000) 1995 2005 2015 2025 Aspirers (Rs.1x Rs.Increasing consumption India has entered into a virtuous cycle in which rising income leads to increasing consumption.90000-200000) Strivers (Rs. 17 trillion today to Rs. 500000-1000000) Seekers (Rs. further fuelling GDP and income growth. creating more business opportunities and employment. Exhibit 23: Domestic consumption as % to GDP 70% 60% 50% 40% 30% 20% 10% 0% -10% China Investment Japan India US Private Consumption Net Trade Source: MGI Government Consumption The combination of increasing household income (contributing 80% to consumption growth) and growing population (contributing 16% to consumption growth) is expected to increase the overall consumer spending. India is expected to become the world’s fifth largest consumer market by 2025 from the current twelfth largest consumer market at present. a fourfold increase. India’s growth has been largely fuelled by domestic consumption (62% of GDP) as compared to Asian peers like China (47% of GDP). Exhibit 24: Aggregate consumption – dominating middle class 80 70 60 Aggregate consumption expected to increase 4. 34 trillion by 2015 and Rs.200000-500000) Globals (>Rs. aggregate consumption in India is expected to grow (in real terms) from Rs. Trillion 50 40 30 20 10 0 4. According to MGI. 70 trillion by 2025.

5 Gifts 2. i. ft.Sq. dine and have fun. With the launch of Easy Monthly Installment (EMI) cards. debit cards and credit cards.1 Source: KSA Consumer Outlook. According to the Census report. The mall space in the country has increased from 3. by 2015. The working women prefer to go to a one-stop shop for purchasing regular products. Exhibit 26: Mall Space 400 350 300 250 200 150 100 50 0 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Space Mn. which augurs well for organized retailing formats.9 mn sq.0 Music 2.Ft 22 | P a g e . Source: Images Retail F&R Research Mall space expected to increase at 33% CAGR during 2006-15 140% 120% 100% 80% 60% 40% 20% 0% Growth (%) Mn. India has the potential to grow to at least 55 mn credit cards by 2010-11. The use of plastic money. the population of working women increased to 26% in 2001 as compared with 22% in 1991. 2002. According to industry estimates. Increased mall space Malls are being increasingly accepted as venue for shopping and entertainment in the urban areas. It has become a destination where the whole family can shop. has increased significantly over the past 3-4 years.Increasing proportion of working women The propensity to consume is higher in working women as compared to housewives. As a result the number of malls has seen a sudden rise in the past 3-4 years due to rising income and consumer’s willingness to spend. in 2006 and is estimated to increase to 350 mn sq. The buying behavior of the working women is different than their counterpart due to higher disposable family income and less available time. in 2002 to 26. the purchasing power of the consumers has increased tremendously.2 Eating out 2. ft.ft.7 mn sq. Exhibit 25: Average spend: working women vs. Sq.e. Cris Infac Propensity to consume higher in working women Increased credit available The ease of payments (ability to spend without cash) due to the use of debit and credit cards has resulted in increase in total spending.9 Mobile phones 3. housewives Category Spend Household goods 2. India has approximately 75 mn cards (25 million credit cards and 50 million debit cards) under circulation and has been growing 30% y-o-y.8 Computer peripherals 4. ft.

hypermarkets. These non-extinct urban centres that accounted for only 3. Lucknow. These cities are plush with high income/high net-worth consumers and mall developers are exploiting the potential. supermarkets. discount and convenience stores. This group. the retailers are eyeing to open stores in Tier-2. Organised retailing in small-town India is growing at 50-60 percent a year compared to the 35-40 percent growth in the major cities of India. Ludhiana and Jaipur. Since value retail stores serve as one-stop shop for the customers. About 200 tier-III cities with a population of less than two million.ft. discount stores. of mall space three years from now as compared to 3. Pune. Besides the commonly listed tier-II and tier-III cities like Indore. Ahmedabad. of mall space in 2004 are expected to boast of 4. India’s majority population is and expected to be in middle class income group. where organised retailing can effectively set base – each of these 700 centres will on average be catering to about 1000 villages. by nature.7 crore sq.57 lakh sq.ft. mall space in the National Capital Region (NCR) at the time.Value retailing Value retailing includes stores offering lower prices.ft. and another 500 rural towns have the potential to become prominent rural hubs. In a survey conducted by KPMG. Kochi.35 crore sq. prefers value retailing formats like hypermarkets. Nagpur. Mysore. it is more convenient and time saving for this working group to purchase products at these stores. Hyderabad. Tier-3 and Tier-4 cities. Sonepat. etc to have the most potential growth in India. Organised retailing in small town expected to grow at 50-60% per year 23 | P a g e . there are numerous smaller cities where modern malls are coming up. better variety and a better shopping experience. the respondents chose the value retailing formats like supermarkets. Exhibit 27: Increasing preference for hypermarkets E-tailing Convenience Department Stores Discount Hypermarkets Supermarkets Speciality 0 10 20 30 40 9 9 18 27 36 45 45 50 respondents could choose from more than 1 format Source: KPMG in India Retail Survey 2005 Penetration in Tier 2 and tier-3 expected to rise With the approaching saturation of Tier-1 cities and metros and increasing competition.

08 Kolkata 2.67 South-Other Centres 3.17 Kochi 3.79 Sonepat 1.61 Mysore 2.02 Delhi & NCR 2.92 West-Other Centres 2.48 North-Other Centres 2.50 Greater Mumbai 1.53 Ludhiana 3.24 Bangalore 2.44 Lucknow 2.84 Ahmedabad 2.65 Source: Images Retail F&R Research 24 | P a g e .48 Nagpur 2.70 Indore 2.96 Jaipur 3.65 Chennai 3.74 Hyderabad 4.05 East-Other centres 2.Exhibit 28: Average Land Space per unit of Land Area Average Land Space per City unit of Land Area Pune 1.

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