Eros International, Provogue, India Cements

Eros International, Provogue, India Cements

Provogue

Provogue

Provogue India, Banking Earnings Preview, IT Earnings Preview

Provogue India, Banking Earnings Preview, IT Earnings Preview

Provogue

Investors with a short-term trading perspective can buy the stock of Provogue India. This stock is in a strong uptrend since the low of Rs 41.4 recorded on May 26. It has recorded only three negative daily closes since this trough.

Provogue

Investors with a long-term perspective can buy the stock of Provogue (India), a premium retailer in apparel and accessories. At Rs 51, the stock trades at 17.7 times trailing the four-quarter earnings at a discount to peers such as Shoppers' Stop and Trent. The stock trades at about 14 times estimated FY-11 per-share earnings.

Provogue has an established and significant brand recall in both menswear and women's wear. Backward integration in the manufacture of apparel has resulted in higher operating margins.

The improvement in sales from the discount chain Promart, and retail infrastructure development through a joint-venture are other positive factors for this retailer.

Premium play

Provogue retails formalwear and casuals for men and women. The product line also covers value-added offerings such as shoes, body-care products and accessories. Provogue commands sizeable brand recall. A marketing association with movies such as Wake Up Sid and Aladin further strengthen the reach of the brand.

Products are sold through a store network that combines exclusive outlets and larger department stores such as Globus and Lifestyle and other multi-brand outlets. Store count, as of October 2009, is 126 owned stores and 110 shop-in-shops. Plans are on to end FY-10 with an own-store count of 143, an additional 50 stores by end-2011 together calling for an investment of about Rs 43 crore.

Provogue's product range comes with a premium tag, targeted at youth. Provogue competes with brands such as Colour Plus. Premium retail has borne much of the brunt of the spending slowdown in the second half of 2008 and initial 2009. Sales have since picked up from the June 2009 quarter, albeit at a slower pace than value retail.

Provogue has managed strong growth in sales, with the December ‘09 quarter recording a 22 per cent sales growth over the same period last year.

Diversification

Though premium retail is picking up, value players hold an edge. Provogue has kicked off its value initiative through discount stores which offer a range of brands such as Peter England, John Players, Scullers and Jealous Jeans at discounted prices. Called Promart, the chain has two stores in Tier-II cities. Such discount offerings on branded apparel are similar to Pantaloon's Brand Factory, and is likely to draw in a larger customer base.

Revenue contribution of this venture is minimal given its limited reach. Therefore, while this format holds potential, step-up in contribution will depend on the company's ability to expand footprint.

Retail stores aside, Provogue has teamed up with the UK-based Liberty International to develop malls in smaller cities. The first mall in Aurangabad is set to open in 2010 with tenants such as HyperCity. In the pipeline are malls in smaller cities such as Nagpur, Indore and Jaipur.

The company is also well-placed on the funding side for both realty ventures and retail expansion with a debt-equity of 0.3 times, and an interest cover of 3.7 times. Provogue also exports fabric and dyestuff which form about a third of revenues.

Higher margins

Sales clocked a 32 per cent three-year CAGR with net profits managing a 31 per cent growth. Operating margins are at a strong 18.5 per cent for FY-09, up from the 17 per cent a year before.

However, even as debt-equity ratio is on the lower side, interest costs did eat into margins, and, together with depreciation have brought net margins down to 8.4 per cent for FY-09.

Still, operating and net margins are higher than most retail peers. For the nine-months ended December ‘09, operating margins slipped slightly to 17.5 per cent, though net margins held at 7.9 per cent.

via BL

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SSKI Research report on Provogue:

HIGHLIGHTS OF FY07 RESULTS

Piggy riding the retail boom

Provogue has reported revenue surge of 50% in FY07 at Rs 2.4 billion on the back of retail ramp up (94 Provogue Studios and 6 Provogue Mega Stores) and addition of new categories like footwear, women’s wear, fashion accessories, besides ramp up of national chain of stores like Shopper’s Stop, Globus, Pantaloons, etc. Provogue has also started a value retailing format – ProMart (store size of 50,000sq. ft.), which would be similar to factory outlets for various fashion brands. As Provogue grows its same store growth and adds higher realization productlines, margins have improved by 30bp and PAT has grown at 52% to Rs 196 million. On the consolidated basis, Provogue has reported PAT of Rs 192 million, as Prozone is yet to contribute to the bottomline.

Provogue – a fashion statement

Having built a strong equity, Provogue is extending its reach as also add product categories - women's wear, innerwear, footwear and fashion accessories. Provogue is ramping up its retail presence through Provogue Studios (1200-1500 sq. ft.) and Provogue Mega Stores (6,000-10,000 sq. ft.) from 100 stores now to 150 by FY08. Provogue is well developing on the lines of GAP and GUESS and making a style statement. With a view to foray into value retailing for branded products, Provogue has set up - Promart. Each of the Promart stores would be ranging from 50,000-100,000 sq. ft. Provogue also intends to introduce global fashion brands into India to extend its own equity in the fashion space. Provogue may look at tie ups with global brands and would handle the marketing and distribution in India for these brands.

Prozone – the big value creator

Prozone - the proxy retail play: Provogue has forayed into retail development and mall management business through its subsidiary Prozone. Having roped in Liberty International UK, one of the largest retail developer and mall manager in the world (AUM of GBP 7.5 billion) for 25% stake (for Rs 2 billion), Prozone has lined up 7 properties across 7m sq. ft. of retail space in cities like Mysore, Aurangabad, Thane, Surat, Indore, Nagpur and Chandigarh, first of which would be operational by end of FY08. With Provogue understanding of the domestic retail operations and Liberty’s expertise in mall development and access to international brands, we are confident of Prozone emerging as a successful player in the space. Currently valued at Rs 8 billion, we see immense value creation potential in this business. Globally, real estate funds enjoy the highest earnings multiple after exchanges and trade at 30-50x multiples. Players like Simon, Westfield, etc, have traded at 30-40x multiples. We believe that Provogue would also look at getting the Prozone entity demerged and potentially list the company. Provogue would potentially also look at foraying into REIT or real estate VC funding, as done by Pantaloon Retail (Kshitij).

The 'real'ty value lies here: Reiterate Outperformer

As Provogue scales up its retail operations, we are confident of revenues growing at 30% CAGR over FY07-09. We believe that Provogue is attractively valued and offers substantial upside from the current levels. Excluding Rs 6 billion of residual value of Prozone from Provogue’s current valuations of USD 225 million, the branded operations is trading at attractive valuations of 11x FY08E earnings. Provogue is one of our top picks in the sector. Reiterate Outperformer.

Valuation

Provogue has reported revenue growth of 50% in FY07 at Rs 2.4 billion on the back of rapid store expansion and extension of Provogue brand to new categories. Improving throughput from continuing retail space has resulted in operating margin expansion of 30bp. PAT has risen by 52% at Rs 196 million. Provogue is emerging into an attractive retail as also proxy retail play. Provogue continues to extend its brand equity on the fashion platform through rapid retail ramp up (150 Provogue Studios / Provogue Mega Stores by 2008) as also portfolio expansion to women's wear, footwear, fashion accessories, etc. To leverage Provogue’s strong presence in fashion space, it would also look at introducing international fashion brands into India. While Provogue continues to piggy ride the retail growth, the biggest opportunity and where we see big value getting created is in its subsidiary - Prozone, the retail development and mall management business. Prozone currently has 7 properties under various stages of development (over 7m sq. ft.). Having roped in Liberty International, UK (infused Rs 2 billion for 25% stake in Prozone), one of the largest retail developer and mall manager in the world, Prozone emerges as one of the best proxy retail play. Excluding Rs 6 billion of residual value of Prozone in Provogue’s current valuations, the branded operations is trading at an attractive valuation of 11x FY08E earnings. Provogue remains one of our top picks in the retail space. Reiterate Outperformer.