Plan to expand 60 new stores in two & half years: V-Mart

The Rs 123.5 crore public offer of new Delhi-based multi-brand retail chain V-Mart Retail opened for subscription on Friday. Initial public offer of 57.46 lakh equity shares comprises of a fresh issue of 40.11 lakh shares and an offer for sale of 17.35 lakh shares by Naman Finance and Investment Private limited.

The issue will constitute 32 percent of the post issue paid-up capital. The price band for the issue, which will close on February 5, is fixed at Rs 195-215 per share. Will V-Mart Retail be different from V2 (Vishal) Retail? The company primarily operates in tier-II and tier-III cities, with a chain of “Value Retail” departmental stores offering apparels, general merchandise and kirana; catering to the entire family. Its operations are spread across northern, western and eastern parts of India. Lalit Agarwal, CMD of V-Mart Retail said they are basically looking at raising funds for aggressive expansions. Sensing good opportunities for retail market in tier II and tier III cities, we are looking at penetrating into many more cities, he added. “Our object is to open up another 60 stores in the coming two and a half years in tier-II and tier-III cities from the funds that we raise, he asserted. Below is the edited transcript of his interview on CNBC-TV18 Q: I will start with highlighting what exactly the proceeds of the initial public offering (IPO) will be used for? Can you detail exactly what the timeline of this proceed will be in terms of utilisation as well? A: With the kind of scenario that exists in India today is that consumption is rising for the middle and the aspiring class. It is seen that out of 620 districts available in India, there are many districts which are still untapped by organized retail. So we have ventured into many tier-II and tier-III cities and have found a tremendous response there. We think working in tier-II and tier-III cities for retail is going to be a good phenomenon and sense a good opportunity going forward. So we are looking at cashing in on these opportunities and want to raise funds to have an aggressive expansion. We already have a first mover advantage in tier-II and tier-III cities over others. Now we want to penetrate into more cities and more towns. As far as the market is concerned, it will be very receptive. The kind of numbers that we have, and the kind of results that we have had and also the kind of projections that we have, the object is to open up another 60 stores in the coming two and a half years in these tier-II and tier-III cities from the funds that we raise. Q: There is a bit of concern because the company’s concentration is largely in the northern region of India, so do you see that as a potential business risk given the Pan India presence of some of your larger peers, any plans of diversification across geographies for the company? A: The Company has adopted a policy called the cluster based approach. We typically do not open stores more than 100-150 kilometers away from the existing store. This way we try to understand the consumption or the consumption pattern of the customers available in those markets. Each and every geography has a huge consumption and all those geographies in India that is every 100 km is different. There are different eating habits, different wearing habits, different festivals, different culture, and different languages etc almsot every 100 km. We want to understand those geographies very well and then expand forward. We have taken a concentrated effort in understanding those geographies well and the expertise needed and moved forward. This is why we have not spread across Pan India, so we are concentrated in the northern-western zone and we want to remain there. Our policy is to approach the similar regional based cluster approach. Q: While your top-line is fairly robust, there is some trepidation with regards to the bottom-line as well as the margins; can you give us a sense in terms of the growth that investors can expect on maybe profitability? How much you can possibly ramp up in terms of margins, a ballpark figure? A: 2012-2013 has been a very good year for the company and we be so going forward too because our penetration is more into fashion. Going forward, we will be penetrating more into fashion, which is giving us a better margin. From fashion we derive a margin of almost 34-35 percent. We have a better margin on the top-end and have a lower cost because our average rental is Rs 29 per sq ft, which is 4.5 percent of my sales which is going down gradually. Due to this, my profit after tax (PAT) is going to increase; my EBITDA is going to increase. It has already increased which we were able to see it for the first eight months, and we will be able to see in the subsequent months also. We are already growing by 33 percent and if we analyse the numbers we have already crossed 70 percent.