Real Estate - Provogue India - Prologue to realty play - Elara Capital Visit Note

• Provogue India
• Rating : Unrated
• CMP : INR75 (as on 8 October 2010)

Prologue to realty play

Foray into non-core real estate

Provogue, through its 75% subsidiary Prozone in conjunction with UK's Capital Shopping Centres (Liberty Int'l), Old Mutual, and LTG, has actively entered the retail real estate development territory. The opening of their first mall at Aurangabad on Friday marked this foray. Considering the superior quality of the mall and its tenants, as well as keeping in mind Provogue's negligible experience in this space, we look forward to the next few launches which will be the further triggers for the stock price.

Valuations signal a compelling BUY

Rough valuations indicate equivalent value contribution on the part of real estate as well as apparel retail. However, at the CMP of INR75.4, Provogue is trading at 18.8x its standalone apparel retail FY12E consensus EPS of INR4 while its peer Raymonds at 25.4x is currently enjoying a 35% premium. Not only does this indicate an easy upside in the retail business alone, but also highlights the fact that the real estate business value is still not getting factored into the stock price. Worthy of note in this context is the fact that the Old Mutual and LTG deals value Provogue's holding in the real estate business at INR8.86bn while Provogue's current market cap alone stands at INR8.68bn, indicating the fact that the stock could be an easy doubler even from the current levels.

First mall in affluent Aurangabad district

“Prozone” Aurangabad is also the first mall in the entire district of Aurangabad, a region characterized by affluent business setups (the 148 Mercedes-Benz cars recently ordered to Aurangabad from Pune is now a legend) as well as an increasingly conscious youth starved of quality entertainment and lifestyle options.

Strong show of support

Owing to the fact that Provogue was making an entry into a sector very different from its core business, and that too facing the challenges of the downturn, we were skeptical about its real estate plans going forward. However, this concern was allayed by the obvious upbeat sentiment and the strong show of support pitched in by Old Mutual's entire board of 31 Directors, Liberty International's CEO David Fischel as well as other Directors, and of course, the brand ambassador Hrithik Roshan who attracted the local masses in hordes, all in attendance.

Source : Equity Bulls

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