Will The Joyride Ticket Make Vishal Retail Smile

By Pallavi S

  • 24 Nov 2009

Promoters of Vishal Retail are merging one of their privately-owned companies with the listed entity even as the corporate debt restructuring (CDR) plan, which has been proposed to the lenders of the debt-laden retail firm, is yet to be get a formal nod.

Vishal Water World, an amusement and water park project based in Kolkata, is being merged with Vishal Retail that would, in effect, push up promoter holding in the company besides bringing in additional assets to the financially beleaguered company.

Vishal Water World is being seen as a real estate play whose land bank (valued at around Rs 60 crore as per disclosures) would eventually be sold by Vishal Retail to retire debt. Promoters’ stake will shoot up from about 62% to around 71% post merger. This move could also be seen as an attempt to prevent total management takeover, if the company is forced to induct a strategic partner.



The financial downturn, which hit the sunrise sector of retail in the country and sunk the fortunes of Subhiksha (the Chennai-based discount chain that had to shut its 1,600 stores across the country leading to 15,000 job losses) along with the investment of PE firm ICICI Venture, has been threatening another such financial investor.

Bennett, Coleman Company Ltd (BCCL), which holds 9% stake in Vishal Retail (post merger of Vishal Water World, its holding will decline to around 7%) through its ‘private treaties’ division (which buys stake in both private and listed companies in ad-for-equity deals) has been facing a question mark over whether to exit with whatever is left on the table (read:market sale) or to wait for the outcome of the restructuring proposal. An email query sent to BCCL and Gaja, another institutional investor, on their future course of action remained unanswered.


One of the likely scenarios that has been building up for Vishal is to induct a strategic investor, who could be large retail firms who are yet to burn huge money in the sector like Bharti or other industrial cash-rich groups.

Vishal Retail was, reportedly, in talks with two potential investors which could eventually lead to change in promoter group. Given the debt liability of Rs 730 crore, the new strategic investor is likely to get fresh issue of shares to bring it back to health under the CDR, which is yet to be finalised with the lenders.

SBI, which has an exposure of Rs 170 crore towards Vishal, leads the group of 13 lenders to the retailer. Other lenders include HSBC, HDFC, ING, Barclays, UCO, LIC and Deutsche Bank. Vishal reported losses of Rs 115 crore for the March quarter but managed to reduce its losses in the June quarter to Rs 90 crore.


As per reports, Vishal is looking to raise around Rs 100-150 crore from a strategic investor to save the company against the current market cap of Rs 130 crore, which would mean the investor would pick majority stake in the mass market retailer.

With 9% holding, BCCL is the single largest non-promoter shareholder in the company which also has Gaja Partners with around 2% stake as of September 30, 2009.

BCCL's holding is currently valued at Rs 16.8 crore ($ 3.6 million) around half of the original cost of purchase of Rs 30 crore. It had first invested in Vishal in September 2005 much before the IPO of the firm.


It has stayed put with its investments till date and has seen through a time when Vishal’s scrip rose to as high as Rs 1,000/share in January 2008, days before the markets crashed. At that point, BCCL was sitting on returns of close to 7x within 28 months.

However, while other institutional investors (with the exception of Gaja besides another entity) rolled back their exposure from Vishal, BCCL continued to stay put. For instance, FII and mutual fund holding dropped from 12% in March 2008 to less than 1% in September 2009 but the two pre-IPO investors continue to hold their shares. 

BCCL has been a ‘serial’ investor in the retail story of the country having invested in more than a dozen retail-backed companies including Pantaloon, Archies, Sleepins Apparels, Khadim India and Welspun Retail.



The Vishal story started 23 years ago when the promoters set up their business through a small ready-made garment store in Kolkata. Vishal Retail’s founder and managing director Ram Chandra Agarwal shifted from Kolkata to New Delhi in 2001 and started his first supermarket in the city. His timing was right as he built an exposure in the sunrise sector a few years before the boom period, when investors flocked to retail sector like they did during the dotcom era.

Rapid expansion over the last few years saw the company see sales rise from Rs 88 crore in 2004 to Rs 1,393 crore in FY09 with close to 170 stores across various cities. In the meantime, the company hired professional managers to operate the growing retail network and came out with a successful public float of shares during the bull-run in mid-2007.

The IPO, which incidentally opened on the same day as property developer DLF, saw 70 times oversubscription and the scrip soared 75% on its debut. In less than six months, the share price moved almost four times when the company was valued close to Rs 2,000 crore ($400 million around January 2008).

The economic downturn coupled with the market nosedive changed the life of all companies, particularly retail firms. With a slowdown in discretionary spends by consumers, retail firms started feeling the pinch of unbridled expansion which more than ate into profits in a market which was already seeing signs of crowding out.

Vishal also tried to expand rapidly through borrowings in the hope that it would raise money through equity to keep the balance sheet intact. But, the free fall of the stock market cringed credit substantially and lenders started recalling debt which dried up cash for the company. As a result, the company had to go on a drastic cost-cutting drive. For the first half of current financial year, it reported net loss of Rs 165 crore on net sales of Rs 550 crore.

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