Tuesday, March 27, 2012

>PROVOGUE INDIA: Shares get re-listed on the exchanges with demerged status

The event - Provogue India shares get re-listed on the exchanges with demerged status

Provogue India (Provogue)’s shares that had got temporarily suspended from trading for the demerger process got listed today on the bourses at Rs17 per share.

As per the scheme of demerger every shareholder holding 1 share of Provogue has received 1 share of Prozone Capital Shopping Centers Ltd (PCSCL; face value Rs2). The face value of Provogue shares has got reduced from Rs2 to Rs1.  The capital structure for both, Provogue (the demerged entity that got listed today which now only holds the core retail business) and PCSCL (which will hold all the real estate business and assets) has been illustrated below in a table.

Shares of PCSCL will get relisted after it files for the same, which may take one to three months. Our fair value for Prozone works out to Rs27 per share.  Based on the auditor’s statement, Rs207 crore of the net book value of approximately Rs714 crore has been transferred into the demerged entity (PCSCL). Thus the pre acquisition based on this statement works out in a ratio of 29% (207/714) for PCSCL and 71% for Provogue.

Our analysis
■ Retail business environment still somber but better than Q3FY2012: Our interaction with the company’s management to gauge an understanding of the retail demand environment post the weak festive season demand that was seen in Q3FY2012 reveals that the first two months of Q4FY2012 (Jan & Feb) saw a decent uptick in demand led by festive season sale and release of the festive led pent up demand, while March sales were somber. We believe one needs to keep a watch on the new summer collection full price sale to figure out the demand momentum for retail/branded apparels.

 Post restructuring, our revised target price for Provogue is Rs35; Maintain Buy: Post restructuring Provogue now holds only the core retail assets that include brand sales- Provogue along with export sales, ie those which were part of standalone financials. Thus our standalone financials and estimates for Provogue remain intact. We expect a decline in FY2012 profits while we expect FY2013 to witness strong recovery with a 26% growth in earnings. Valuing branded business and the export business of Provogue with a blended price earning ratio (PER) at 10x FY2013, we arrive at a target price of Rs35 for Provogue. Thus our revised target price for Provogue now stands at Rs35 and we maintain our Buy rating.