Vishal Retail seeks rent re-negotiation, to relocate stores

Diversified retail player Vishal Retail today said the group is undertaking re-negotiation of rent agreements with property owners for a 25-50 per cent reduction in rentals and also plans to close down, relocate and resize stores to achieve economic viability.

The company's comments came close in the wake of its announcement last week to close down two of its stores in Mumbai and Jodhpur, respectively.

"We are in the process of re-negotiating rentals with many of our property owners and are looking at achieving 25-50 per cent reduction in rentals, in line with the downslide in realty prices," Vishal Retail Group President Ambheek Khemka told PTI.

"We are also planning to relocate stores, which are economically not viable or whose rentals are more than market rates and resize others to make them more profitable," he said.

He said the company is undertaking a study to look at economic viability and rental state of all its stores.

"We are identifying stores to find out where we need to resize them, close down or relocate to some other location. The process will take some time to complete," he said.

Vishal Retail's latest stand comes a few months after the retail giant cut down its turnover target to Rs 1,500 crore for the current fiscal, down from Rs 1,800 initially planned.

The company, which has currently around 185 stores, including hypermarkets and small-format stores across India, had clocked a turnover of just over Rs 1,000 crore in 2007-08.

When asked about plans to close down any more stores, Khemka said: "Not immediately. We will first finish the viability study and then look into the matter."

He admitted that the company's stores, specially the ones in metros and Tier I cities, have witnessed reduction in footfalls and sales.

Vishal Retail net rises 34.66% (QoQ) in Jun`08 qtr

Vishal Retail disclosed a 34.66% rise in its standalone net profit for the quarter ended June 2008. During the quarter, the profit of the company stood at Rs 140.11 million compared with Rs 104.04 million in the quarter ended March 2008.

Net sales increased 18.25% to Rs 3,765.49 million, while total income for the quarter rose 17.59% to Rs 3,784.31 million when compared with the previous quarter ended March 2008.

The company reported 35.79% increase in earnings of Rs 6.26 a share as against Rs 4.61 a share over the previous quarter.

Vishal Retail offers good potential

Vishal Retail, one of the leading and growing companies in manufacturing and retailing of readymade garments (apparels), non-apparels and FMCG products, is a pioneer in discount retailing, focused on tier II and III cities in the country and is expanding its operations at a rapid pace. It operates in the industry which has posted tremendous growth numbers led by value retail and driven space addition and better growth in the existing stores over the last five years.

The company endeavors to facilitate the one-stop convenience with reasonably-priced products manufacturing at its own plant in Gurgaon, Haryana, Dehradun and Manesar with a capacity of 5,000 garment pieces per day in each unit.

The company has added of 3 million pieces per annum of garment manufacturing capacity in Dehradun and Manesar, 9 new warehouses with an area of 581,640 square feet and also implemented modules of SAP with an investment of around Rs 75 million.

The company plans to diversify the portfolio from apparel segment which accounts 61.2% of product mix to FMCG and non apparels both of which have a share of around 18% in folio mix. It has recently entered into an agreement with HPCL for opening retail outlets (store size varying from 500-1,000 sq ft) at selected fuel stations (around 1,000-1,500 locations). As per the contract, HPCL shall provide space to the company for either retail stores or warehousing at its mutually selected retail outlets. Launch of loyalty cards to attract customers, particularly females is also under planning process.

Vishal Retail
Particulars	2007	2008	% Change YoY
Sales *	6026.50	10053.10	67.00
Net Profit *	250.70	406.96	62.00
EPS	14.00	19.00	36.00
EBIDTA	694.30	1291.00	86.00
Debt/equity	1.9 (x)	2.0 (x)
*Sales, Net profit and EBIDTA in Rs million

Vishal Retail registered a rise of 62% in net profit after tax at Rs 406 million for the financial year 2008 as against Rs 250.7 million in the previous year. The company reported earnings of Rs 19 a share in the year as against previous year`s earnings of Rs 14 a share. The total revenues of the company has increased by 68% from Rs 6,050.4 million to Rs 10,144.6 million for the period in comparison due to addition in retail space and increased footfalls.

During the fiscal 2008, EBIDTA margin has surged by 86% to Rs 1,291 million. The operating margin of the company seems to be under pressure due to organic expansion in manufacturing and human resource department, while strong network and rise in contribution from private labels can prove to be boosters for the same.

The total number of stores of the company has reached 126 stores spread across India, covering an area of 2,392,000 square feet. It has also maintained it consistency in customer service and operation which can be seen through rise of 2.03 times in daily footfalls at 182,396.

Vishal Retail has witnessed a rapid growth rate during the current financial year. Its garment manufacturing capacity is now around 4.5 million pieces per annum. With addition of new warehouses, it now has 29 warehouses with a space of 1.1 million square feet located in 8 key distribution centers and a fleet of 98 trucks and lorries.

All company locations are now linked through a company-wide VNC (virtual network connection) and video conferencing together with hotlines to provide online connectivity. This can be attributed to the implementation of SAP module with an investment of around Rs 75 million.

The Delhi-based company plans to open 70 more stores at a cost of around Rs 7 billion by the end of this year for which it is planning to raise around Rs 2 billion through a private equity route, while the remaining fund will be arranged through debt.

Vishal Retail is currently trading at a price of around Rs 390.40 a share. Shares of the company are trading at huge discount when compared with its peers. The company is valued at 20.55 times of FY2008 earnings.

However, the company faces significant competition in the retail industry. The competition can be faced from prominent players like Pantaloon Retail, Shoppers` Stop RPG, Trent and Lifestyle. Barring Kolkata, all the properties of the company are leased or licensed in company`s favor under various agreements. Disputes that may arise with owners of such properties may affect the profitability of the company. Raw materials including fabric are sourced from external suppliers, which constitute the largest component of manufacturing costs for garments. Rise in these input cost amid higher rate of inflation can dent the margins of the company.

To conclude, players focusing on value retail have grown much faster than those focused on lifestyle. The retailers are expected to pump in over USD 25 billion into the sector over the next four years to scale up their retailing operations and strengthen back-end systems. According to a research study, the domestic retailers who enjoy early entrant advantages at key retailing locations can look to gain a pan-India presence.