>PROVOGUE (ICICI DIRECT)

Provogue (India) is a major player in the branded retail segment and also has a presence in retail development and mall management. The company operates the retail segment under the brand Provogue and the real estate business under the brand Prozone. With the revival in consumer offtake, we expect its retail business to get back to the higher growth trajectory. While the retail business remains the key growth driver, we expect prozone to contribute positively, going ahead. Prozone, with three projects under execution, appears to be in a sweet spot, as these properties would enable Provogue to earn annual rental income and contribute to its earning growth.

In a sweet zone…

■ Retail expansion on the fast track
Provogue’s retail operations have a pan-India presence with 125 Provogue studios and mega studios (premium segment) and two Promart stores (bargain department stores). With easing rentals and the improving macro scenario, Provogue has stepped up its retail expansion plans. It plans to add 15 Provogue stores and four to six Promart stores annually.

■ Prozone to start contributing from Q2FY11
Prozone, (75% subsidiary of Provogue), through its 70% held SPV (Prozone Liberty International) plans to build about 15 million sq ft of malls/offices/hotels in Tier II cities of India. Prozone plans to build malls in Aurangabad, Coimbatore, Nagpur, etc. Its Aurangabad property that has a saleable area of 0.83 million sq ft is expected to commence operations in June 2010. Nearly 60% of this property is pre-leased at an average rental of Rs 47 and would add significantly to the revenue and profitability of the company from FY11 onwards.

■ Financial performance to improve from H2FY10 onwards
With improving consumer sentiments, the retail industry is expected to register enhanced growth momentum. Provogue, with its pan-India presence and strong expansion plans with lower cost structure owing to downward revision of lease rentals of its few properties would be able to enhance its profitability, going ahead.

Valuation
At the CMP of Rs 65.7, the stock is trading at attractive valuations of 18.7x and 1.1x FY11E consensus earnings and book value, respectively, which are at a significant discount to valuations of other retail companies. We recommend the stock with a 10% upside from current levels as our Pick of the Week.

To read the full report: PROVOGUE