LSE Securities

Provogue () Ltd. - Stock Data 05/10/2010 Provogue - Buy Current Mkt Price (Rs) 75.85 • Provogue (India) owns leading fashion retail brand 52 Week High 75.75 ‘Provogue’ and also operates retail real estate development business through a 75%-held subsidiary 52 Week Low 41.2 - ‘Prozone’. Mkt Cap (Rs. in Million) 8635.36 • The company is looking to scale-up its presence in the Return in last one Month (%) 14.23 country by opening around 80 new retail stores over next two years, which will take its stores count to 220 Share Holding by the financial year 2011-12. • Prozone can prove to be a game changer for the company as the worries over project execution seems to be fading with the start of first mall in Aurangabad and plan to start working on other two projects by the end of this fiscal. • Provogue India plans to foray into the fashion watch segment by next month and is eyeing around Rs 20- 25- crore revenue from this business over the next 18 months Business Overview The company after its incorporation on November 11, Performance in last one year 1997 as Acme Clothing launched the fashion brand ‘Provogue’ in March 1998 and over the years the same has become a fashion statement in the country rather than just an apparel brand. In April 2004, Provogue acquired the entire business of export of textile, textile machinery and textile related chemicals from Acme Global and it currently operates these businesses as its division under the name Acme Global. The company’s brands are retailed through 136 own stores and 127 national chain stores (NCS)/ multi-brand outlets (MBOs) Shopper’S Stop, Lifestyle, Globus, Westside etc. It has association with supermodels and stars namely , , Fardeen Khan, and Esha Deol as its brand ambassadors. Provogue also operates retail real estate development Y-o-Y Performance business through a 75%-held subsidiary - ‘Prozone’. (Rs. in Million) The balance 25% stake in Prozone is owned by Capital Particulars Mar 2010 Mar 2009 Change(%) Shopping Centre (CSC), the UK-based leading company Net Sales 4806.67 3567.63 34.73 engaged in development of shopping centres and a Other Income 227.70 292.95 -22.27 demerged unit of Liberty International. Prozone has total Total Expenditure 4310.62 3212.35 34.19 156 acres of land spread across Aurangabad, Nagpur, Operating Profit 723.75 648.24 11.65 Indore, Jaipur and Coimbatore under its belt. Interest 199.45 149.71 33.23 Apart from this, the company also has a retail store Profits After Tax 283.53 294.59 -3.75 division -- Promart -- which is known for offering big Reserve & Surplus 0.07 0.06 4.62 brands in men’s apparel, women’s clothing, kid’s wear, Reported EPS(Rs) 2.48 2.59 -4.27 footwear, accessories, etc at reasonable rates. Core EBITDA Margin (%) 10.32 9.96 3.63 LSE Securities

Financial Health Q-o-Q Performance For the financial year ended March 31, 2010, the company (Rs. in Million) Particulars Jun 2010 Jun 2009 Change(%) had posted a net profit of Rs 28.35 crore against Rs 29.46 crore in the last year, registering a marginal dip of 4%. Net Sales 1033.56 732.22 41.15 Its total income for FY10, however, increased by 30% Expenditure 883.03 624.88 41.31 to Rs 501.41 crore from Rs 385.99 crore for FY09. The Other Income 35.36 53.24 -33.58 major reason behind drop in net profit was sharp rise in EBITDA 185.89 160.58 15.76 cost of raw material. Interest 54.93 41.29 33.03 On consolidated basis, revenue from textile business Net Profit 78.08 67.44 15.78 had grown by 36% in 2009-10 fiscal while infrastructure EBITDA Margin (%) 0.18 0.22 -17.99 business remained as a foot-dragger with 96% drop in NPM (%) 0.08 0.09 -17.98 revenues due to project delays. EPS 0.69 0.58 18.97 Meanwhile, first quarter of 2010-11 financial year (i.e. the quarter ended on June 30, 2010) was good for the Profit & Loss company with 16% rise in net profit to Rs 7.81 crore. It (Rs. in Million) had reported a net profit of Rs 6.74 crore for the quarter Particulars Mar 2010 Mar 2009 Change(%) ended June 30, 2009. Total income during the same Net Sales 4806.67 3567.63 34.73 period surged by 36% to Rs 106.89 crore from Rs 78.55 Total Income 5034.37 3860.58 30.40 crore for the corresponding quarter of last year. Total Expenditure 4310.62 3212.35 34.19 Latest Developments Operating Profit 723.75 648.24 11.65 Provogue India plans to foray into the fashion watch Profits After Tax 283.53 294.59 -3.75 segment by next month and is eyeing around Rs 20-25- cr revenue from this business over the next 18 months. Balance Sheet Initially the company will launch 20 models. The watch (Rs. in Million) category in India is growing fast. The company will Particulars Mar 2010 Mar 2009 Change(%) initially start with the top five metros and then move Share Capital 228.71 232.81 -1.76 into other cities. It holds a manufacturing contract with Reserve & Surplus 6797.30 6497.04 4.62 Fos sil and the products would be manufactured at its Total Liabilities 9223.02 8429.67 9.41 Himachal unit. Investments 2898.64 3463.92 -16.32 Provogue unveiled its new campaign for the season Current Liabilities 624.79 483.95 29.10 specifically for Andhra Pradesh. It has signed Tollywood Net Current Assets 5605.97 4200.90 33.45 Superstar and youth icon Mahesh Babu as its new brand Total Assests 9223.02 8429.67 9.41 ambassador for Andhra Pradesh.Mahesh Babu will endorse the products for Provogue in Andhra Pradesh Key Ratios through promotion, advertising and marketing. The endorsement of Mahesh Babu as brand ambassador for Particulars Mar 2010 Mar 2009 Andhra Pradesh aims to create a platform where the Reported EPS (Rs) 2.48 2.53 brand is able to convey its brand attributes to mass audience in its region. Core EBITDA Margin (%) 10.32 9.96 Industry Scenario EBIT Margin (%) 12.50 15.50 ROA (%) 3.21 4.49 The Indian textile industry contributes about 14 per cent ROE (%) 4.12 5.96 to industrial production, 4 per cent to the country’s gross domestic product (GDP) and 17 per cent to the country’s ROCE (%) 6.81 8.44 export earnings. The Indian textile industry, which was Price/Book (x) 0.77 0.58 hit hard by the global economic recession, is witnessing a Net Sales Growth (%) 34.73 6.13 good recovery in the current year in the domestic space. EBIT Growth (%) 8.64 12.45 However, the cotton textile exporters continue to face PAT Growth (%) -3.75 13.44 another challenging year in wake of sharp increase in Total Debt/Mcap (%) 0.40 0.39 LSE Securities cotton yarn prices and strong competition being witnessed the same time it is also looking to expand its offerings from rival exporters from China and Bangladesh. base further under the brand - Provogue. It has already The Industry which saw strong growth in three years started retailing women’s clothing, leatherwear, footwear, preceding the FY09 was one of the hardest hit by the global sunglasses, men’s grooming products, watches, innerwear, economic downturn as demand from both export and etc. besides men’s apparels. Provogue also exports apparel domestic markets declined. After facing two consecutive and dyestuff which form about a third of its revenues and difficult years, the industry is on the recovery road now. it will be concentrating on that segment too. During the crisis, the hardest hit companies were the Earlier this year, the company received the Bombay High ones with greater share of revenue from exports. While Court (HC) nod for development of infrastructure project players with a greater focus on domestic demand were at Nagpur, . The company under its retail real hit too, the improvement in Indian economy much ahead estate development unit-- Prozone-- is going forward as of the global scenario helped the locally focused textile the worries over project execution seems to be fading companies post a reasonable recovery in second half of with the Prozone starting its first mall in Aurangabad in 2009. However, the export sector is still somewhat weak the month of October 2010 and also planning to start as far as textile sector is concerned and cotton textile working on other residential, hospitality and commercial players are facing yet again challenging year in 2010. projects by the end of this fiscal which will be located The biggest decline that Indian textile industry has been across Nagpur and Coimbatore, these two centres will facing came from the US, the largest textile export be launched in 2012. The Aurangabad mall is expected destination for India. Textile exports to the US declined to generate rental revenues of around Rs 36 crore in the nearly 5% during the last fiscal. The figure was higher for first year of operation and the same may lead to some the first half of the fiscal at over 8%, but came down as outlook revision for the company in near future. Property demand from the US started improving in since last quarter in Indore which the company had shelved the plan to of the 2009. In fact, during last few months, exports have make a mall, but will be launching them as residential been in green and the global recession fades. colonies this year. So, Indore, Coimbatore and Nagpur will all see residential colonies. Overall, there are signs pointing towards a strong recovery in India’s textile industry in 2010, following the dismal Provogue’s entry in the fashion watch market is a right operating environment that the sector had to contend step at an appropriate time as the wrist watch market with for the two preceding years. The situation is more had a huge growth potential as youths, specially in the favourable to domestically-focused and synthetic textile 24-35 age group, are increasingly rooting for them to companies given the stable demand and cost side. make a fashion statement. The rise in disposable income coupled with changing consumer perception has led Investment Rationale to strong demand for luxury watches. The company is After a gap of two years, the company is returning to aiming to garner revenue of Rs 20-25 crore from this aggressive expansion path and is looking to add more segment alone in the next 18 months, further going it than 85 stores over the next one and a half year. This can become a good revenue source for the company. will help Provogue to take its stores count in the country At a CMP of Rs 75.85, the stock is available at 28.93x to around 220 by FY2012. The company had not opened its PE multiple and 1x P/BV. Assigning 20x PE multiple any new store in FY09 due to high rental cost while in FY11 (E) (considering a discount to its current valuation FY10 it inaugurated total 19 new stores but at the same due to single brand model of the company), its EPS will time to bring down the costs it shut down 19 outlets. It grow to around Rs 3FY11 (E) Rs 3.6 FY12 (E). At these has already opened 10 new stores in the country since valuations, the company’s core retail business will be April 2010 and by the end of this calendar year the valued at Rs 60 per share at the end of FY11 and at Rs company is likely to add 10-20 more stores in its tally. 72 FY12. This indicates that the current market price of Besides increasing the stores count, the company is also the company doesn’t reflect valuation for its 75% stake concentrating on entering into new markets within the in Prozone which is likely to amass revenue of around country. Currently around 30% of its stores are located Rs 250-300 crore for the coming financial year. If we in Tier I cities and is planning to establish its presence in consider per share valuation for Prozone 75% stake it Tier II and Tier III cities. comes at Rs 20-25 per share. Further the company has The company currently sells its products through 127 NCS/ stated firmly that it will go for a SPV level dilution and MBOs which contribute almost 30% of its retail sales, once there will be no dilution at Prozone level. Therefore we again there is an aggressive rollout plans of NCS/ MBOs recommend a BUY in the stock with a target of Rs 95 in that will help the company to further expand its reach on the medium term. LSE Securities

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