Monday, May 3, 2010

Stock Idea: Provogue India Ltd.

Provogue India Ltd (Rs 50) (Rs 2 paid up)
(BSE Code- 532647 NSE Code- PROVOGUE)
(P/E- 10, FY09 Sales - Rs363 cr, Market Cap - Rs575 cr)

Provogue India Ltd (PIL) operates in two core segments: designing, manufacturing and selling of branded ready-made garments and accessories under the brand, Provogue, which has been positioned as a fashion label in the Indian domestic market. A major portion of the apparels is manufactured at an in-house plant at Daman (Union Territory), with the remaining garments and accessories outsourced. Distribution is managed through a mix of owned branded stores and a network of national chains and single owner multi-brand outlets (MBOs). Exporting is the second business (acquired from a group company on 1 April 2004). Provogue is registered as an ‘export house’ by the government of India. The company exports finished fabrics, dyestuffs, chemicals and textile machinery to several markets in the African continent. All these products are outsourced from various suppliers. Provogue came out with an IPO at Rs 150 per share(Rs 10 paid up) in mid June 2005 to finance the expansion of the company's retail stores and its garment manufacturing and design capabilities.
Provogue has emerged as a leading fashion brand in the Indian ready to wear (RTW) markets, within a relatively short span of seven years since its launch in 1998. It commands a very high brand recall among customers, made possible due to its aggressive marketing strategies, innovative merchandise and famous brand ambassadors. Provogue made a net profit of Rs 59 cr. on revenues of Rs 363 cr. in FY09 on consolidated basis. On a equity of 22.96 cr.,(Promoters’ stake- 42.08%) the EPS on a Rs 2 paid up share stood at Rs 5 and the dividend declared was 30%.. For the nine months ended December, 2009, Provogue has posted net profit of Rs 24.55 cr.(up 16.5%) on net sales of Rs 310 cr.(up 15%) on standalone basis.
After a year of slow growth, apparel maker and retailer Provogue is reworking its business strategy to boost revenues and prop up margins. After the consolidation in the last two years, the company is ready to grow aggressively. Under the new strategy, Provogue plans to reduce the size of its stores, sell more of its vendor brands, slow expansion in its discount format, and scale down mall development. It is confident that this strategic shift, along with the perking up of the economy, will ensure a topline growth of 25-30% every year going forward. Provogue, which opened its first store in 2001, today has 126 stores and over 100 shop-in-shops. The company plans to open 50 new stores in the next two years with an investment of Rs 35 cr. to take its store count to 175. Prozone Liberty, the mall development arm of Provogue, has also scaled down its plans given the slowdown in the retail sector earlier. Originally, the company planned to build six malls, now it is going ahead with only three, in Jaipur, Indore and Aurangabad. The company is also exploring ways to use additional land in these sites for alternative uses such as residential development.
Provogue India is also in talks with FMCG companies to form a joint venture to distribute its bodycare products across the country. Currently, Provogue sells hair gel, body spray and other accessories under its own brand name in its stores and select outlets of Shoppers Stop’s department stores. The distribution JV is expected to help it gain better market share and expected to give Rs 50 cr. in revenues in the next couple of years. The company is planning to float a separate company in West Asia and is in talks with companies in the region to start retailing operations there and the company expects to sign a JV by the middle of next year and open stores by financial year 2011. Provogue is also planning to re-brand its discount format, Promart, into a value brand and a more youth-oriented concept. In view of the above developments and improving growth prospects, Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-45% over the next 6-8 months.
Source: Internet (Valuenotes by Sanjay Chhabria)

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