Will V-Mart Retail be different from V2 (Vishal) Retail?
Instead of giving boring lectures in every available forum on propping up primary markets, Sebi should take constructive steps to prevent fly-by-night operators from looting in connivance with crony merchant bankers and greedy media tycoons. Else, even the existing minuscule retail investor base will disappear sooner than later.
V-Mart Retail Ltd (V-Mart) may have nothing to do with Vishal Retail Ltd (now known as V2 Retail Ltd), except the blood relation between the promoters. But, the story of Vishal is a classic case that proves how influential investment bankers help their cronies to make money at the cost of investing public.
Vishal reported a top line of over Rs 600 cr and posted Rs 25 cr net profit for fiscal 2007 on a capital base of Rs 18 cr. Based on the company’s financial performance, Vishal’s investment banker, Enam Financial, advised a price of Rs 270 (Rs 10 paid-up) for the company’s IPO in June 2007. Vishal sold Rs 4.07 cr worth of shares for an exorbitant amount of Rs 110 cr.
In just six months since listing the scrip sky-rocketed to over Rs 1000. No one bothered to investigate the price rigging. Six months later, when the so called `one-year lock-in period’ lapsed, the stock crashed to less than Rs 100, at more than 75% discount to the IPO price! This time too, the regulators turned a blind eye. The company, which boasted sales and profit of Rs 600 cr and Rs 25 cr respectively in 2007, reported Rs 40 cr sales in 2012 and ended at a colossal loss of Rs 35 cr!
If the company’s prospects were so miserable, how the market savvy merchant banker who boasts great in-house equity research capability, failed to read the writings on the wall? Also, when the going was tough for the company on the operational front, how the price appreciated by more than 300% in less than six months of the IPO?
According to Vishal’s offer document, the company was compelled to make the IPO in 2007 in order to facilitate an exit route for HDFC. Otherwise, the promoters would have been forced to buy out HDFC’s holdings in Vishal. Interestingly, the promoters had buy-back agreement with Bennett, Coleman& Co. Limited (BCCL) too. Vishal had agreed to issue advertisements worth Rs 30 cr to both print and non-print media affiliated to BCCL between September 2005 and August 2010. In the process, BCCL acquired 20.55 lakh shares, equivalent to 11.2% of Vishal’s pre-IPO equity.
The post-IPO shareholding pattern of Vishal would vouch that both HDFC and BCCL pocketed their gain immediately after their lock-in period when the stock was artificially ruling the roost. Meanwhile, Vishal’s promoters’ stake too declined from the pre-issue promise of 64% to 57%. In other words, Vishal’s IPO in 2007 and the post-IPO flare-up in the stock price immensely benefited the company and its promoters besides HDFC and BCCL. Has any of these players who got the bonanza through unfair means been made accountable? Today, the Rs 270 IPO is languishing at just about Rs 12.
Coming to the present IPO, like Vishal, the promoters of V-Mart too have the compulsion to float public V-Mart and list the shares before March 31, 2013 failing which they would be forced to buy-out from the `selling shareholder’, Naman Finance of Aditya Birla Group, who are holding 21.7% 33.04 lakh shares. Interestingly, V-Mart’s IPO is lead-managed by the market intermediary controlled by a former senior executive of Aditya Birla Group. If market sources were to be believed, certain merchant bankers had advised a price of only Rs 110 for the V-Mart IPO. Yet, the IPO is steeply priced between Rs 195 and Rs 215. Has Anand Rathi agreed for the steep price in order to benefit his former employer?
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OFFER AT A GLANCE |
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Name |
V-Mart Retail Ltd |
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Public Offer |
Fresh issue of 27.61 lakh shares and Sale of 17.35 lakh existing shares |
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Offer Price |
Between Rs 195 and Rs 215 |
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Offer Amount |
Between Rs 88 cr and Rs 97 cr |
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IPO% on Total Equity |
25% |
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Post-IPO Free Float |
41.2% |
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Application Quantity |
66 & Multiples of 66 |
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Bid/Offer Opens |
February 1, 2013 |
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Bid/Offer Closes |
February 5, 2013 |
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IPO Grading |
CARE |
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Grade |
3 out of 5 |
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Lead Manager |
Anand Rathi Advisors |
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Registrars |
Karvy Computershare |
The Offer
V-Mart’s public issue consists of a fresh issue of 27,61,000 shares from the company and an Offer for Sale of 17,35,000 shares by Naman Finance and Investment Private Ltd. The offer is being made through book building route with a price band of Rs 195 to Rs 215 valued between Rs 88 cr and Rs 97 cr. Investors should apply for a minimum of 66 shares and multiples of 66 thereafter.
Issue Object
Even though the objects of V-Mart IPO are said to be financing expansion plans of the company and achieve the benefits of listing on the stock exchanges, the main reason for the IPO is to facilitate an exit route for Naman Finance.
However, as the fresh issue is going to fetch Rs 54 cr to Rs 59 cr, the company has planned to increase its reach in tier 2 and tier 3 cities and towns. It proposes to add an additional store area of 4.77 lac sq. ft. by opening 60 new stores in the next 3 fiscal years. The company wants to add 73,305 sq ft storage capacity too to cater to the additional stores. The company plans to either extend the present facilities or lease new ones. The main expenditure will constitute of interior works, air conditioning, furniture, electrical fittings and IT hardware and software. The additional working capital requirements will also be met through the IPO proceeds.
IPO Grading
CARE has assigned `Grade 3’ (out of 5) for V-Mart IPO reasoning that the grading derived strength from promoters’ three decades of experience, comfortable capital structure, widespread geographical presence and a large supplier base. CARE also claims to have factored in constrains of working capital intensive-operations, intense competition, moderate scale of business and regulatory uncertainties surrounding the retail sector.
Promoter & Background
As mentioned earlier, the main promoter of V-Mart Retail, Lalit Agarwal is a first cousin of Vishal Retail’s promoter Ram Chand Agarwal. Incidentally, Lalit was earlier working with his cousin under Vishal Retail and left the company well before Vishal’s public issue due to difference of opinion among the cousins.
Originally incorporated as Varin Commercial Private Limited in 2002, V-Mart started its operations in value retail segment by opening their first retail store in Gujarat in 2003. The company’s name was changed to V Mart Retail in 2006. V-Mart reportedly operates 59 stores with a total store area of 4.82 lakh sq.ft spread across 51 cities in 10 states & union territories. All stores have lease agreements with 2 stores having revenue sharing clause. The company claims to operate all its stores on its own. Its operations are mainly spread in tier 2 and tier 3 cities of Northern, Eastern and Western part of the country. Some of the major states in which company operates are New Delhi, Gujarat, Madhya Pradesh, Uttar Pradesh, Bihar, Punjab and Rajasthan.
IPO Valuation
V-Mart‘s growth which was almost flat in fiscal 2010, picked up significantly since 2011. At the end of fiscal 2012 the company’s top line stood at Rs 282 cr on which it posted a net profit of Rs 11 cr. This yields an EPS of Rs 7.26 on the pre-IPO capital of Rs 15.20 cr. V-Mart’s proposed price band discounts the earnings about 27 to 30 times. This may, perhaps, look cheap as compared to the current discounting of Trent and Shoppers Stop. Nevertheless, for a little known promoter whose credentials are yet to be proven in the listed domain, a P/E of 27 to 30 is too much to bank on.
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How V-Mart compares with other retailers |
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CO NAME |
COS |
M-CAP |
P/E |
P/BV |
P/R |
YIELD |
PRICE |
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(Rs Cr) |
(x) |
% |
(Rs) |
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Pantaloon Retail |
|
5,583 |
616.9 |
1.9 |
1.2 |
0.4 |
246.65 |
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Trent |
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3,762 |
58.3 |
2.3 |
4.2 |
0.6 |
1,160.05 |
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Shoppers Stop |
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3,612 |
93.9 |
5.3 |
1.7 |
0.2 |
435.70 |
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Store One Retail |
|
100 |
2.9 |
1.3 |
1.3 |
0.0 |
43.00 |
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V2 Retail |
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28 |
– |
0.1 |
0.3 |
0.0 |
12.34 |
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Koutons Retail |
|
22 |
– |
0.8 |
0.4 |
0.0 |
7.33 |
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Retail Compos |
6 |
13,107 |
89.7 |
2.3 |
1.7 |
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|
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Mkt. Composite |
2,981 |
6,967,533 |
16.1 |
2.2 |
1.4 |
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|
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V-Mart Retail |
Hi-band |
386 |
29.6 |
6.0 |
1.4 |
0.2 |
215.00 |
|
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Lo-band |
350 |
26.8 |
5.4 |
1.2 |
0.2 |
195.00 |
Investment Banker’s Track
Since 2009 Anand Rathi Advisors has lead-managed seven IPOs of which only one has given fabulous returns. Four issues are currently going at heavy discounts, two of them losing more than 80%. Will V-Mart buck the trend or will it go the same way as Vishal?
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IPOs HANDLED BY ANAND RATHI ADVISORS SINCE 2009 |
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CO_NAME |
IPO DATE |
FV |
IPO PRICE |
CUR PRICE |
GAIN% |
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Euro Multivision |
22-Sep-09 |
10 |
75 |
3.91 |
-94.8 |
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Pradip Overseas |
11-Mar-10 |
10 |
110 |
17.00 |
-84.5 |
|
Intrasoft Techno |
23-Mar-10 |
10 |
145 |
49.00 |
-66.2 |
|
Gallantt Ispat |
22-Sep-10 |
10 |
50 |
70.25 |
40.5 |
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C.Mahendra Export |
31-Dec-10 |
10 |
110 |
59.40 |
-46.0 |
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Lovable Lingerie |
08-Mar-11 |
10 |
205 |
330.60 |
61.3 |
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Aanjaneya Lifecare |
09-May-11 |
10 |
234 |
771.90 |
229.9 |