See fair value for SRS IPO at Rs 52: Unicon Investment
Unicon believe that SRS should command a premium over of its peers. The research firm also feels the Rs 52 is a fair value for the stock, on post dilution basis.
August 23, 2011 / 18:34 IST
SRS a sister company of SRS Real Infrastructure Ltd. The company operates in four business verticals viz. Cinema Exhibition (Multiplexes), Retail, Food&Beverages and Jewellery. Unicon believe that SRS should command a premium over of its peers. The research firm also feels the Rs 52 is a fair value for the stock, on post dilution basis.
Investment Rationale:Unique Business Model with strong brand valueCinema and F&B to drive margin expansion cinema exhibition F&B Revenue to ride on strong retail positioning SRS is the only Indian company in consumer segment to provide umbrella service in malls by operating in numerous consumer verticals like cinema, retail, food & beverages and jewellery. Presence in multiple consumer segments diversifies the portfolio and protects the company from the negative effects of seasonality. SRS markets the entire basket of products under 'SRS' brandname, including the nomenclature of real estate projects in its sister company. Besides this, its specific focus on north India has helped it in transforming 'SRS' into a much bigger brand in the region, especially in the NCR. Cinema and F&B to drive margin expansionSRS' business enjoys highest EBITDA margin amongst all business verticals. Its EBITDA margin stood at 14% and 18% in FY10 and FY11 respectively. The company has planned a capital expenditure of INR 1170 mn to add 51 screens at 15 new locations by FY13. In (Food & Beverages) segment, the company commands a healthy margin of ~16% level as seen in FY11. In order to address the growing demand of F&B and improve its blended margin, SRS has planned to set up another 33 F&B outlets at an estimated area of 1.8 lac square feet. Revenue to ride on strong retail positioningRetail segment is the second largest revenue contributor for SRS with ~26% of the total FY11 revenue. The company is looking to further capitalize on the consumer story by expanding its retail presence from 23 to 53 stores. Addition of new outletswould boost the topline of the company. Strong financials provides room for expansionSRS is better placed in terms of credit position and is well poised to raise capital for any future expansion plans. The company aims to raise INR 2.1 - 2.2 bn through an initial public offering which would allow it to reduce its D / E to ~0.25x from 0.9x in FY11. Valuation:SRS is the only Indian company in consumer segment to provide umbrella service in malls by operating in numerous consumer verticals like cinema, retail, food & beverages and jewellery. It operates in a niche bracket in retail space which is gaining support from GoI through FDI approval. SRS has shown an extra-ordinary execution capability by growing its jewellery business at a CAGR of 861% over FY09-11. Hence, considering these factors we believe that SRS should commanda premium over of its peers. We have valued the stock using P/BV and P/E multiples on trailing basis. The average blended industry FY11 P/BV of 1.6x gives the stock a value of INR 47 while the average FY11 P/E of 21.4x gives the stock a price of INR 58 (after considering 20% illiquidity discount). Hence,we believe INR 52 is a fair value for the stock, on post dilution basis.For further details click on attachment 
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