Shopping for long-term

Vishal Retail is into the selling of ready-made apparels and a wide range of household merchandise and other consumer goods. In an endeavour to set up a one-stop shop, the company manufactures or directly procures from manufacturers (primarily from small and medium-size vendors). The company intends to offer around 40,74,074 shares at the high end of the price band (Rs 270).

It plans to expand its presence across major cities, which include the Tier-I, Tier-II, and Tier-III ones. However, it intends to flourish its expansion with a prime focus more in the Tier-III cities, which include Ajmer, Coimbatore, Ranchi, Mangalore, Lucknow, and Vijaywada. And for this, it intends to use around Rs 104.15 crore. As such, the company's sales and profit, for a five-year period, have grown at a CAGR of 64.54 and more than 100% respectively.

Investonomics

The retail segment in India is seeing a surge. With the announcement of Bharti-Wal-mart tie-up and many other entrants in the offing planning various major acquisitions, the sector has been garnering attention and investment like never before. In fact, according to an estimate, the organised retail industry in India is growing at the rate of 24-26% annually. And it is further estimated that the organised retail penetration in India will increase to 5.8% by 2007-08 from a meagre 3.5% in 2004-05.

So, companies like Vishal Retail have fair and better chances to cash in on the boom and make the most of it. However, in the sector dynamics like annual consumption and spending, exquisite service offers along with ambience, and better attractive pricing, Vishal Retail has to fight with formidable players. Players like Pantaloon Retail, Shopper's Stop and Trent (India), who have not only established brands but also have an attached base of customers. And the competition from these players cannot be ruled out.

It must be also noted that the company's promoters are also in the business of retailing and any conflict of interest cannot be pronounced insignificant.

Valuations

On the valuation front, the company is considering its annualised earnings quotes a P/E of around 24.30(x) and 20.70(x) at the higher and the lower end of the price band. While its peers like Pantaloon Retail, Shopper's Stop and Trent (India) quote a P/E of around 53 (x), 86.5(x) and 41(x), respectively. This adds a positive investing sentiment to the issue.

It must be also noted that the industry is seeing a trend wherein a bigger retail player acquires a potential smaller player. And players like Vishal Retail, with their strong base, have good possibility of being a strong acquistion target in this trend.

More so, the company stands a good chance to excel on their own, if it exhibits strong adaptability in new locations along with one-stop attractive offerings.