Vishal Retail likely to miss FY09 revenue target on slowing sales

Vishal Retail, a value retailer, said it may miss its Rs 1,800 crore revenue target set for the year ending March 31, as consumers cut down on purchases anticipating job cuts and grim job outlook.

The Delhi-based retailer’s announcement of missing the target comes on the heels of the company saying that lack of cash and slower than expected store growth had forced it to put on hold expansion plans for the next quarter.

“Since we have frozen our expansion plans for the rest of the financial year, it is unlikely that we would be able to meet our revenue target,” said Ram Chandra Agarwal, chairman and managing director, Vishal Retail. He declined to give a revised target for the company as the company was in the process of analysing the performance of different stores across India. Vishal Retail, currently has 181 stores with nearly 29,80,900 sq ft of retail space across India. At the beginning of FY09, the company had set a target of opening 200 stores.

The company has about Rs 800 crore of debt sanctioned from lenders, of which it has already borrowed Rs 725 crore, said Agarwal.

Commenting on the reports that the company is mulling to sell stake, Agarwal said, “We do not need to sell our stake to any retailer as we will not expand this fiscal and, we have enough working capital to run our daily business." A section of the media had reported that the company was looking to raise money for its expansion by selling its stake to Reliance Retail or Future Group at Rs 150-200 per share.

At the beginning of the year, all retailers were bullish on their expansion plans and revenue earning targets. However, due to slump in demand, especially in the high margin products like apparel and other non-food items, most of the retailers have revised their revenue targets.

“The company will not be able to meet its revenue target due to freeze in its expansion of stores as well as slowdown in demand, said C Ravishankar, Manager — Strategic and Commercial Intelligence (Transaction Services), KPMG.

Retailers like Vishal have been the best bet of the sector's analysts who think that value retailers will be the least affected in this downturn.

Several retailers are struggling to arrange cash for their expansion plans. Recently, Shopper’s Stop, a departmental retail chain, said it was deferring a plan to raise stake in Hypercity to 51 per cent by about 19 months because of cash crunch and slowing sales. Retailers have undertaken their expansion thorough a mix of of long and short term debt. But slower than expected growth in sales has made them rethink their fast expansion as well as revenue targets.

Earlier, Spencer’s Retail had revised its revenue target for 2008-09 from Rs 1,800 crore to Rs 1,500 crore after it was forced to shut 56 of its non-performing stores. Organised retail sector in India is valued at Rs 80,000 crore.

The sector’s growth has come down from 25 per cent in 2007 to 15 per cent in 2008.