Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Provogue India: Buy
Diversification into real-estate development, along with strong brand presence, low debt-equity and better margins through backward integration, augur well.
The company has a firmly established brand presence in the sizeable youth segment
Bhavana Acharya
Premium retailer Provogue's foray into construction and running shopping malls came to fruition as it opened its first mall in October 2010. That the mall houses established retailers such as Star India Bazaar and Croma is another indicator that execution risks, which had shadowed the prospects of this construction business, have abated to an extent.
Provogue has a firmly-established brand recall in apparel for men and women. Low debt-equity and better margins through backward integration are other positives. Provogue is turning its focus on developing two other malls in less-penetrated cities. The construction business, carried out through a joint venture, is supported by investments by private equity players.
We reiterate a buy on this stock for investors with a two-three year perspective, taking advantage of its recent price fall. At Rs 48, the stock trades at 19 times trailing twelve-month earnings, and 13 times estimated earnings for FY12, assuming a pace of store additions similar to the current year. Peers such as Zodiac Clothing trade at valuations which are at a slight discount.
Investors may limit portfolio exposure to this stock given its small cap status.
Provogue operates in the premium end of the value spectrum, competing with players such as Colour Plus, Wrangler and Zodiac. Premium retail holds good growth prospects against a backdrop of a healthy job market, salary hikes and positive consumer sentiment.
Provogue has a firmly-established brand catering to the sizeable youth segment which also has a higher propensity to splurge on lifestyle products. Provogue retails apparel and accessories for men and women, thus addressing a wide market.
Associations with movies such as Anjaana Anjaani and Wake Up Sid offer a good platform to strengthen the brand.
Diversification into the value segment has also been started through a format called Promart, where brands such as Peter England and Scullers are sold at discounts. However, given its nascent stage, this segment is unlikely to significantly contribute to revenues in the near-term.
Products are retailed through exclusively owned stores and multi-brand outlets such as Globus and Shoppers' Stop. Store count at end-March 2010 numbered 246, with plans to add 75 stores by end-FY11. By end-October 2010, the count had risen to about 274. Bankrolling store expansion should not prove a constraint with a low debt-equity of 0.5 times.
Mall development
Provogue undertakes real estate development through Prozone (a 75 per cent subsidiary), a joint venture with UK-based Capital Shopping Centres Group, to unlock value in its land bank. Mall activity had been delayed following the slowdown in 2008 and 2009. Its first mall in Aurangabad, therefore, became operational only in October 2010.
The mall has tenants such as Star Bazaar, Fashion@Big Bazaar, Globus, and so on, thereby combining both value and premium offerings to draw in more footfalls.
Mall development is slated for small- and mid-sized cities where competition is likely to be lower and where first-mover advantage may be etched. Provogue is currently developing malls in Nagpur and Coimbatore. It is not looking at metros, given their retail saturation. The successful completion of its first mall buffers confidence in Provogue's ability to develop the other projects.
Funding for these developments is aided by an investment of Rs 306 crore from private equity player Triangle Real Estate, backed by Old Mutual Investments, which will help keep debt and Provogue's own equity investments in check.
Financials
Consolidated revenues have clocked a 26 per cent annual compounded growth over the past three years. Net profits, however, managed a slow 4 per cent growth in the same period. Increase in depreciation and interest costs as the company ventured into real estate development may account for the slower growth.
Total debt ballooned from Rs 60 crore in FY07 to Rs 396 crore in FY10, though debt-equity was kept in check by raising equity through preferential issues and warrant conversions. With its first mall now operational, net profit growth may improve in FY12.
Provogue owns two manufacturing facilities, with an annual capacity of over one million pieces per annum. While the entire requirement is not met through in-house manufacturing, such backward integration does help better operating margins.
Increase in raw material costs in FY10, however, resulted in operating margins dipping to 14 per cent from the 17 per cent in previous years. Even so, margins are higher than most pure-play retailers.
Margins improved to 17 per cent in the six months ending September 2010. Depreciation and interest outgo resulted in net margins of 4 per cent. Interest cover is fairly reasonable at three times.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Provogue India: Buy
Diversification into real-estate development, along with strong brand presence, low debt-equity and better margins through backward integration, augur well.
The company has a firmly established brand presence in the sizeable youth segment
Bhavana Acharya
Premium retailer Provogue's foray into construction and running shopping malls came to fruition as it opened its first mall in October 2010. That the mall houses established retailers such as Star India Bazaar and Croma is another indicator that execution risks, which had shadowed the prospects of this construction business, have abated to an extent.
Provogue has a firmly-established brand recall in apparel for men and women. Low debt-equity and better margins through backward integration are other positives. Provogue is turning its focus on developing two other malls in less-penetrated cities. The construction business, carried out through a joint venture, is supported by investments by private equity players.
We reiterate a buy on this stock for investors with a two-three year perspective, taking advantage of its recent price fall. At Rs 48, the stock trades at 19 times trailing twelve-month earnings, and 13 times estimated earnings for FY12, assuming a pace of store additions similar to the current year. Peers such as Zodiac Clothing trade at valuations which are at a slight discount.
Investors may limit portfolio exposure to this stock given its small cap status.
Provogue operates in the premium end of the value spectrum, competing with players such as Colour Plus, Wrangler and Zodiac. Premium retail holds good growth prospects against a backdrop of a healthy job market, salary hikes and positive consumer sentiment.
Provogue has a firmly-established brand catering to the sizeable youth segment which also has a higher propensity to splurge on lifestyle products. Provogue retails apparel and accessories for men and women, thus addressing a wide market.
Associations with movies such as Anjaana Anjaani and Wake Up Sid offer a good platform to strengthen the brand.
Diversification into the value segment has also been started through a format called Promart, where brands such as Peter England and Scullers are sold at discounts. However, given its nascent stage, this segment is unlikely to significantly contribute to revenues in the near-term.
Products are retailed through exclusively owned stores and multi-brand outlets such as Globus and Shoppers' Stop. Store count at end-March 2010 numbered 246, with plans to add 75 stores by end-FY11. By end-October 2010, the count had risen to about 274. Bankrolling store expansion should not prove a constraint with a low debt-equity of 0.5 times.
Mall development
Provogue undertakes real estate development through Prozone (a 75 per cent subsidiary), a joint venture with UK-based Capital Shopping Centres Group, to unlock value in its land bank. Mall activity had been delayed following the slowdown in 2008 and 2009. Its first mall in Aurangabad, therefore, became operational only in October 2010.
The mall has tenants such as Star Bazaar, Fashion@Big Bazaar, Globus, and so on, thereby combining both value and premium offerings to draw in more footfalls.
Mall development is slated for small- and mid-sized cities where competition is likely to be lower and where first-mover advantage may be etched. Provogue is currently developing malls in Nagpur and Coimbatore. It is not looking at metros, given their retail saturation. The successful completion of its first mall buffers confidence in Provogue's ability to develop the other projects.
Funding for these developments is aided by an investment of Rs 306 crore from private equity player Triangle Real Estate, backed by Old Mutual Investments, which will help keep debt and Provogue's own equity investments in check.
Financials
Consolidated revenues have clocked a 26 per cent annual compounded growth over the past three years. Net profits, however, managed a slow 4 per cent growth in the same period. Increase in depreciation and interest costs as the company ventured into real estate development may account for the slower growth.
Total debt ballooned from Rs 60 crore in FY07 to Rs 396 crore in FY10, though debt-equity was kept in check by raising equity through preferential issues and warrant conversions. With its first mall now operational, net profit growth may improve in FY12.
Provogue owns two manufacturing facilities, with an annual capacity of over one million pieces per annum. While the entire requirement is not met through in-house manufacturing, such backward integration does help better operating margins.
Increase in raw material costs in FY10, however, resulted in operating margins dipping to 14 per cent from the 17 per cent in previous years. Even so, margins are higher than most pure-play retailers.
Margins improved to 17 per cent in the six months ending September 2010. Depreciation and interest outgo resulted in net margins of 4 per cent. Interest cover is fairly reasonable at three times.
No comments:
Post a Comment