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Subscribe to Vishal Retail – Review

June 11, 2007

Investors willing to take exposure in the booming Retail Sector in India, can subscribe at “Cut-Off” to the IPO of Vishal Megamart.

Vishal Retail focuses on value retailing in tier-II and tier-III cities. 43 of its 50 stores are located in these cities. Sure their is enough potential for retailing in these cities as well. Through backward integration, in-house design and manufacture of
apparels, the Company substantially controls cost of production and pass on the cost benefits to customers.

Financials:
Over the past 3 years, the company has reported a top line growth of 100% YoY. For they ear ended March-31st 2007, the company had total income of Rs 771 crore and a Net Profit of Rs 24.9 crore. ICICI in its research report expects the Vishal Retail to report a Net Profit of Rs 45.6 crore for year ending March-2008.

IPO Offer:
Offer: Rs 110 crore worth of shares in the price band of Rs 230 to Rs 270.
Fully Diluted Equity Post-IPO: 22.4 crore
Expected EPS assuming Vishal Retail reports a net profit of Rs 45 crore = Rs 20.4

So in the current IPO the shares are offered at a forward P/E of mere 13.5 compared to 30+ for other retailers. Blindly subscribe to the issue. Retail Individual Investors category of the issue is just Rs 33 crore, so allotment will be LOTTERY for even Rs 1.0 lakh application.

Post-Listing Strategy:
The company has no immediate threat and is a good investment bet in the medium term. Vishal Retail will benefit from low real estate prices and staff costs in tier II and tier III cities. However, on strong listing, you are requested to book profits.

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