Vishal Retail may sell stake to fund second-stage expansion

Vishal Retail may sell stake to fund second-stage expansion

New Delhi: In the next six months, Vishal Retail Ltd may go in for a stake sale to fund its growth beyond a currently planned one million sq. ft expansion, the company’s chairman and managing director Ram Chandra Agarwal said on Thursday.

“We will be looking at the option of equity dilution or something like that...within six months," he said, adding this would be used to fund a second stage of expansion.

Agarwal 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 Rs50 crore in debt in 2008-09 and equity of Rs300 crore in 2009-10 for expansion.

Vishal, which has 70 stores across India, plans to increase its retail space in 2008 by one million sq. ft when it adds 43 stores in the first stage of an expansion drive. It has already tied up Rs250 crore for this, part of it from a Rs110 crore initial public offering in June.

“But we are not restricting ourselves to this one million sq. ft. We are searching for more stores. Memorandum of understanding has been pending for one more million sq. ft. And that will be done in two-three months," Agarwal said.

In three months, Vishal will begin to sell private-label consumer durables at half rate compared to 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 durables, 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 will come from non-apparel and fast-moving consumer goods. He said, “60% of our sales are from apparel. I see them falling to 45% in three years."

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

“We will do (sales) somewhere around Rs1,000 crore at the end of this year and profit will be around 4% of the total turnover," Agarwal said. In 2006-07, the firm posted a net profit of Rs25 crore on sales of Rs603 crore.