Indian Retail Sector

Brandhouse retail is under valued

Brandhouse Retail is a part of S Kumar group. This company is involved in developing and managing exclusive brand outlets for foreign brands in India. The companies, which are in the brand portfolio, include Reid & Taylor, Stephen Brothers, Carmicheal House, Belmonte and Dunhill. This company has got a store network of close to 800 stores, which are spread over 90 cities in India and a total covered area of about nine lakh sq feet. Besides the metropolitan cities, this company has got stores in tier 2 and tier 3 cities also in India.”

He further added, “The company has set up a JV with the Italian brand called OVC, under which Brandhouse Retail will hold about 62.5% and 37.5% will be held by OVC. The plan is to open about 200 exclusive retail outlets for OVC brand over a period of the next five years.”

“If you look at the financials of the company, FY10 sales were about Rs 660 crore, which were up by about 20% of FY09. Profit after tax (PAT) was about Rs 16.2 crore, which was again up by about 20%. In the first nine months of the current financial year, sales are about Rs 570 crore, which is up by 12% over same period last year. The PAT is almost flat at about Rs 19.5 crore. EPS on an annualised basis is expected to be about Rs 4.5-5. The stock currently trades at about Rs 25, which means that it is trading at a P/E multiple of about five-six.”

“This company is a play on India’s consumption story. This is a play on the retailing of international brands in the domestic market and taking them to not just the metropolitan cities, but also tier II and tier III cities. I think the opportunity in the business is very big because there are a number of brands, which want to have a presence in India, given India’s rising consumption theme. There are many foreign companies interested in establishing a presence here.”

“Brandhouse has got the knowledge and experience of the local markets. It has already handled business for a number of international players. I think it is a fit company for any foreign brand to employ for creating a brand network or the store network in the India domestic markets.”

“If you look at the valuations of the company, I think at a P/E multiple of about five-six for a company where the opportunity is very large, I think the stock is currently available at very reasonable valuations. Also, a current marketcap of about Rs 135 crore as against expected sales of about Rs 700 crore, it is available at just about 20% of one year sales. I think this is a stock where the potential of growth is good. It is a niche stock; you don’t have too many peer companies listed on the exchanges having this kind of a business model. I think at a P/E multiple of five-six and a marketcap of about Rs 130-135 crore, the stock looks undervalued.”

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