Vishal Retail: rising brand among masses

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Wide presence in tier-II and tier-III cities, increasing contribution of private labels to its earnings, foray into speciality stores, and extensive distribution network have been few developments that would enhance earnings growth of Vishal retail.

The company has more than 80% of its stores in tier-II and tier-III cities, which have middle and lower-middle income groups as target consumers and as the tier-I cities get mature and seasoned players move into tier-II and tier-III cities, Vishal Retail would have an advantage of established network and consumer base. It has a strong distribution network (29 warehouses, a fleet of 98 trucks, plans to erect 190 stores by FY09), which minimises delays in inventory supply from its distribution centres.

Vishal Retail has increased its contribution of private labels. Business with private labels involves better negotiations than the branded ones and hence it involves higher margins. From 9% to the top line in FY07 to around 15% in FY08, the earnings through private labels are increasing and it led to a 120-bps rise in EBITDA margin to 12.7% in FY08 as compared to 11.5% in FY07.

Apart from its expansion in the hypermarket space, Vishal is looking forward to expand its retail presence in small format specialty stores through franchisees or joint ventures. It has tied up with two jewellery retailers for its prospective jewellery foray. It is also planning to enter the restaurant space going ahead and has already opened 42 in-store eating joints at some of its outlets on a pilot basis.

The company’s operating profit margin expanded on Y-o-Y basis to 11.93% in FY08 from 11.12% in FY07 basically due to reduction in cost of goods sold given the increasing share of manufactured items. Its net profit for FY08 increased by 62% to Rs 406.9 crore while profit for Q4FY08 declined by almost 33.16% on rising cost pressures.