DS Kulkarni, Vishal Retail

Religare maintains 'buy' on DS Kulkarni Developers

 

MUMBAI: Religare Securities believes DS Kulkarni Developers has solid growth prospects and maintains 'buy' on the stock with a target price of Rs 502. At the current price of Rs 280, DS Kulkarni trades price to earnings of 12 times 2007-08 estimated earnings per share of Rs 23.3 and 5.6 times 2008-09 EPS of Rs 49.9.

 

The company quotes at 0.4 times one-year forward net asset value of Rs 627 which is relatively cheaper than Mumbai and Pune-based reality players. The target price of Rs 502 for the scrip represents a multiple of 0.8 times one-year forward net asset value.

 

DS Kulkarni Developers has entered into an agreement with Netherlands-based GTC Real Estate for joint development of 250 acre multi-services special economic zone at Pune. The company has possession of the land and has already received in principle approval for the SEZ which will have both processing and non-processing areas.

 

The company has commercial terms with GTC for 230 acres. The remaining 20 acres will be utilised for film animation school, with the several European countries evincing interest in establishing strategic tie-ups for the same.

 

The Dutch real estate developer will be investing $96 million in the zone in a phased manner. The company's saleable land bank expands to 34 million square feet, which is expected to be executed by 2013.

 

Religare recommends 'buy' on Vishal Retail; target Rs 1,018

 

Religare Securities recommends a 'buy' on Vishal Retail with a potential appreciation of 45 per cent.

 

Vishal Retail is one of the fastest growing retail companies, having opened 70 stores in 49 cities over past five years. The company rolled out 1.3 million square feet of retail space at the end of 2006-07 and plans to add another 5 million square feet over next three years. Of this, it aims to add 1.1 million square feet in 2007-08 and already tied up with real estate developers for 0.8-0.9 million square feet.

 

Religare expects the new rollouts and steady growth in old stores to enable Vishal to witness 77 per cent revenue CAGR to Rs 3,320 crore over FY07-FY10.

 

The brokerage has undertaken a comparative valuation of Vishal Retail with Pantaloon Retail and Shoppers' Stop. Although the comparison is not on a like-to-like basis, Religare sees common ground in the growth potential for all these companies.

 

India's $300 billion retail sector is at a point of inflexion and is estimated to grow at CAGR of 6-7 per cent over 2007-10. According to industry sources, organised retail is estimated to grow at CAGR of 25-30 per cent over 2007-10 to reach $60 billion.

 

Both existing and new players have announced aggressive expansion plans. Religare estimates that the organised retail sector will receive investments over $20 billion over next five years.

 

Vishal has highest EBITDA margin amongst peers like Shoppers' stop and Pantaloon retail. The brokerage believes tighter cost control has enabled Vishal to record strong margin expansion, with the EBITDA margin coming in at over 11 per cent for 2006-07.

 

As a conservative measure, Religare has maintained the existing discount to peers in its valuation based on 2008-09 estimates, thus the target 2008-09 P/E multiple of 22.6 times for Vishal Retail, a 52 per cent discount to its peer. This gives a target price of Rs 1,018 for the stock, which signifies a price-to-sales ratio of 1 times 2008-09.