Vishal Retail may sell stake for expansion

Vishal Retail may sell stake for expansion

New Delhi: Vishal Retail Ltd may go in for a stake sale in the next six months to fund its growth beyond a currently planned 1 million square-feet expansion, its chief said on Thursday, 22 November.

“We will be looking at the option of equity dilution or something like that...within six months," chairman and managing director Ram Chandra Agarwal told Reuters in an interview, adding this would be used to fund a second stage of expansion.

He did not specify the amount the retail chain may raise.

Investment bank HSBC, which has an “overweight" rating on Vishal’s stock, has estimated the firm will need to raise about Rs1.5 billion (Rs150 crore, $38 million) in debt in 2008-09 and equity of Rs3 billion in 2009-10 for expansion.

Vishal, which has 70 stores across the country, has plans to increase its retail space in 2008 by a million square feet, when it adds 43 more stores in the first stage of an expansion drive.

It has already tied up Rs2.5 billion for this, part of it from a Rs1.1-billion initial public offering in June.

“But we are not restricting ourselves to this one million square feet. We are searching for more stores. MoU has been pending for one more million square feet. And that will be done in 2-3 months," Agarwal said.

Expanding verticals

In three months, Vishal will begin to sell private-label consumer durables like refrigerators, air conditioners, washing machines — at a price as cheap as half that of similar branded goods, Agarwal said.

Retailers get higher margins from private labels, which are goods sourced from generic manufacturers but are branded by the retailers themselves.

Agarwal said certain foreign firms would produce the goods, but did not reveal their names or the countries they operated in.

“We are coming up with liquor, pharmaceuticals, consumer durable, jewellery, everything ... If you want to be a top retailer in India, you have to be in each and every category and format, that is what we are planning," he said.

As it expands, an increasing portion of Vishal’s sales would come from non-apparel and fast-moving consumer goods.

“Sixty per cent of our sales are from apparel...I see them falling to 45% in three years," he said.

Growth drivers intact

Vishal expects to post about 60 percent growth in net profit and about 66 percent in sales in 2007-08.

“We will do (sales) somewhere around Rs10 billion at the end of this year and profit will be around four percent of the total turnover," Agarwal said.

In 2006-07, the firm posted a net profit of Rs250.7 million on sales of Rs6.03 billion.

“Organized retail will do better than most other sectors. It forms only 3-4% of India’s total retail market. I see it going to 30% in the next five years," he said.

Agarwal said robust growth in the Indian economy and a rise in consumer base will help achieve this.

Shares of the firm were trading 1.2% down at 703 rupees in a weak Mumbai market.