Vishal Retail IPO - a perspective

Vishal Retail, the owner of value retail chain ‘Vishal Megamart’ is coming up with an IPO on 11th June, 2007 to coincide with the DLF IPO. The price band is Rs. 230-270 per share and will raise Rs. 110 crores. The IPO size being just 1% of the DLF IPO size, it is not going to make any dent on the demand for the latter’s IPO.

Vishal Retail started as a small retailer in Kolkata in 2001 now sells apparels, footwear, toys, watches, gifts and FMCG products through its 50 stores primarily situated in North and Central India. The IPO proceeds shall be used to open 22 new stores while another 10 stores would be internally funded.

The company had a net profit of Rs 24.98 crore in FY07. Two-thirds of the revenue came from apparel business while rest from non-apparel business and FMCG. The company is laying emphasis on increasing the FMCG portfolio as it’s a high volume game, altering the revenue mix.

Seeing the viable and growing business model, big corporates like Dabur India, Hero group, HDFC and Bennett, Coleman & Co., have equity stake in the retail chain. 

Employing the concept of value retailing (it manufactures in-house or procure from small and medium size vendors and manufacturers), the company focuses on the middle and lower middle income groups targeting an income group of Rs. 5,000-Rs. 50,000 per month, which forms a considerable market in India.

The company mostly has street stores, avoiding malls to save on real estate costs. The company’s main focus is on tier II & III cities unlike other retailers like Pantaloon, Shoppers’ Stop, Reliance Retail, which have a pan-India strategy focusing on metros.

The company may face tough competition from local and foreign retailers who are expanding their presence in India and have deep pockets. Moreover, since being part of small cities, it faces competition from local stores who have better local market knowledge and personal relationships with the customers.

The company may do well if it opts for self-owned stores as all of its stores are on franchise basis which may hamper the professional knowledge & expertise and does not give a clear universal company strategy.

Vishal Retail may receive good demand from the market as it has carved a niche market segment for itself. Once its listed, depending upon the valuation, it may derive interest from other big retail players as it would give the upcoming hypermarket chains an easy foothold in the small cities of India.