Book Profits in Vishal Retail
Shareholders can consider booking profits in the stock of Vishal Retail. Investors who subscribed to the company’s initial public offer last June are still sitting on a 160 per cent return on the offer price, though the stock has corrected substantially from its highs. The current market price of Rs 689 values the stock at about 25 times its likely FY-09 earnings, assuming the company delivers on its guidance.
The valuation is slightly stiff, in our view, as it factors in sustained ramp up in new stores. We are somewhat skeptical of the company’s ability to meet its expansion target for FY-09, as it is not yet adequately funded for the expansion. Even if it manages to raise equity worth Rs 200 crore through private placement, as proposed, with the balance to be funded by debt, higher interest costs are likely to be a drain on earnings over the next year. As a slower-than-expected pace of roll-out could lead to a de-rating of valuations, shareholders can consider booking profits at least partially on the stock.
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