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PROVOGUE INDIA
OUTPERFORMER (RS35, MCAP: RS4BN / US$88M)
• Retail momentum remains strong: Provogue’s (PROV) retail growth remains on a strong footing on the back of 40-50
store additions in FY11 (including 20 under fit-out) and sustained same store sales growth. Provogue now has nearly
160 stores and is expected to add 25-30 stores annually over the next couple of years. This, coupled with rapid
expansion by the likes of Shoppers Stop, would help PROV’s retail business grow at 25%+ for the next couple of years.
• Results of corrective actions in FY10 now visible: In FY10, PROV started focusing on improving operational
efficiency through implementation of ERP, streamlining supply chain by bringing down distribution centres from 22
to 7, and closing down 19 loss-making stores. This is now visible in PROV’s performance, wherein other overheads
have dropped sharply from earlier levels and inventory days have come down by 25 days. As PROV further
streamlines its supply chain from centralized DC, we expect further reduction in inventory levels.
• Prozone – Aurangabad mall commences operations: Prozone’s 0.8m sqft mall in Aurangabad commenced operations
in October 2010. It has already leased out 80% of the space at an average rental of Rs42/ sqft/ month. About 65% of the
mall is already operational, with all the anchors barring the mutiplex having commenced operations. The mall has a
very strong tenant mix with anchors like Star India Bazaar, Westside, Shoppers Stop, Pantaloons, Croma, etc., and
other stores including Orama, Mothercare, Mom & Me, Lilliput, Provogue, Levi’s, Pepe, Reebok, Nike, etc. The mall is
expected to generate Rs350m-400m of rental income once operations achieve full scale.
• Construction of other properties to start soon: Prozone has 15.8m of developable land across Aurangabad, Indore,
Nagpur, Coimbatore and Jaipur. All project barring Jaipur, which is on hold, are in approval stage and will commence
construction in the next few months. These projects have been delayed while awaiting government approvals and
environmental clearances. While the Indore project will be purely residential, Nagpur and Coimbatore are mix-used
development plans. Given the cash flow of residential and annuity of retail, we see merit in the mix-used
development projects. Prozone will also launch its commercial project in Aurangabad. Next mall in Nagpur and
Coimbatore will be operational in 2013.
• Restructuring of deal with Old Mutual: According to the revised deal, Triangle Real Estate India Fund, promoted by
Old Mutual, will invest Rs3.06bn in Prozone’s SPV, Prozone International Limited, for a 35% stake (valuing the SPV at
Rs8.65bn post money). The SPV will have three projects – Aurangabad, Nagpur and Coimbatore. Of the total
investment of Rs3.06bn, Rs1.41bn would be the value of the stake sale by Prozone in the SPV and the remaining
Rs1.65bn would be fresh issuance into the SPV. Indore and Jaipur, which were earlier part of the SPV, will now be
directly owned by Prozone, while the Coimbatore project would move into the SPV. With this, Prozone would be fully
funded for its expansion.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PROVOGUE INDIA
OUTPERFORMER (RS35, MCAP: RS4BN / US$88M)
• Retail momentum remains strong: Provogue’s (PROV) retail growth remains on a strong footing on the back of 40-50
store additions in FY11 (including 20 under fit-out) and sustained same store sales growth. Provogue now has nearly
160 stores and is expected to add 25-30 stores annually over the next couple of years. This, coupled with rapid
expansion by the likes of Shoppers Stop, would help PROV’s retail business grow at 25%+ for the next couple of years.
• Results of corrective actions in FY10 now visible: In FY10, PROV started focusing on improving operational
efficiency through implementation of ERP, streamlining supply chain by bringing down distribution centres from 22
to 7, and closing down 19 loss-making stores. This is now visible in PROV’s performance, wherein other overheads
have dropped sharply from earlier levels and inventory days have come down by 25 days. As PROV further
streamlines its supply chain from centralized DC, we expect further reduction in inventory levels.
• Prozone – Aurangabad mall commences operations: Prozone’s 0.8m sqft mall in Aurangabad commenced operations
in October 2010. It has already leased out 80% of the space at an average rental of Rs42/ sqft/ month. About 65% of the
mall is already operational, with all the anchors barring the mutiplex having commenced operations. The mall has a
very strong tenant mix with anchors like Star India Bazaar, Westside, Shoppers Stop, Pantaloons, Croma, etc., and
other stores including Orama, Mothercare, Mom & Me, Lilliput, Provogue, Levi’s, Pepe, Reebok, Nike, etc. The mall is
expected to generate Rs350m-400m of rental income once operations achieve full scale.
• Construction of other properties to start soon: Prozone has 15.8m of developable land across Aurangabad, Indore,
Nagpur, Coimbatore and Jaipur. All project barring Jaipur, which is on hold, are in approval stage and will commence
construction in the next few months. These projects have been delayed while awaiting government approvals and
environmental clearances. While the Indore project will be purely residential, Nagpur and Coimbatore are mix-used
development plans. Given the cash flow of residential and annuity of retail, we see merit in the mix-used
development projects. Prozone will also launch its commercial project in Aurangabad. Next mall in Nagpur and
Coimbatore will be operational in 2013.
• Restructuring of deal with Old Mutual: According to the revised deal, Triangle Real Estate India Fund, promoted by
Old Mutual, will invest Rs3.06bn in Prozone’s SPV, Prozone International Limited, for a 35% stake (valuing the SPV at
Rs8.65bn post money). The SPV will have three projects – Aurangabad, Nagpur and Coimbatore. Of the total
investment of Rs3.06bn, Rs1.41bn would be the value of the stake sale by Prozone in the SPV and the remaining
Rs1.65bn would be fresh issuance into the SPV. Indore and Jaipur, which were earlier part of the SPV, will now be
directly owned by Prozone, while the Coimbatore project would move into the SPV. With this, Prozone would be fully
funded for its expansion.
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