Spencer's Retail rights issue (Aug 2020) review

Published on Friday, July 31, 2020 by Dilip Davda

• SRL is a Sanjiv Goenka (Duncan) group multi format Omni channel retailer.
• The company has posted lackluster performance for the last three fiscals.
• Despite growth in top line, it has seen declining bottom lines.
• Issue is priced at a negative P/E considering negative earnings.

ABOUT COMPANY:

Spencer's Retail Ltd. (SRL) a Sanjiv Goenka (Duncan) group company, is one of the leading multi-format Omni-channel retailers in India, catering to the needs of the up market urban consumers for daily fresh food to world food and ingredients. It operates retail stores (primarily in food and grocery) across various formats, selling products in various categories including food, fashion, general merchandise, home ware, consumer durables and electrical. Pursuant to its philosophy, 'Makes Fine Living Affordable', the company caters to aspirational segments of the Indian population across various SEC by providing them with a wide range of quality merchandise at competitive prices.

The key tenet of SRL's merchandising strategy is to offer differentiated products in food and non-food categories at fair-market prices. The company makes global products locally available and local products conveniently available. In effect, it endeavors to be a one-stop-shop for customers and their families. Customer services also are key to SRL's offering, and it aspires to provide best-in-class in store customer experience.

Having pioneered organized retail in India by setting up India's first organized retail chain, company has enjoyed a strong first-mover advantage, which has allowed it to establish a leading position in the retail industry in India. Its first-mover advantage has not only helped develop a wide network of stores, but has also strengthened the brand equity of the company. Spencer's have a pan-India presence with a strong focus on northern, eastern and southern India with a footprint of 191 stores and 14 distribution centers as of March 31, 2020.

Further, with its recent acquisition of NBL, the company has increased presence in western India. Its stores are spread, over about 1.46 million square feet, and are located in 11 states and one union territory namely Maharashtra, Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, West Bengal, Jharkhand, Haryana, Uttar Pradesh, Uttarakhand and Delhi respectively.

ISSUE DETAILS/CAPITAL HISTORY:

To meet its need for working capital (Rs. 60 cr.) and general corpus fund (Rs. 17.21 cr.), SRL is coming out with a rights issue of 10604563 equity shares of Rs. 5 each at a fixed price of Rs. 75 per share to mobilize Rs. 79.53 cr. The company is offering 2 rights shares for every 15 shares held on 29th July 2020. Issue opens for subscription on 04.08.20 and will close on 18.08.20. SRL is spending Rs. 2.32 cr. for this rights issue process.

The issue is solely lead managed by ICICI Securities Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Post allotment, shares will be listed on BSE, CSE and NSE.

Post issue, SRL's current paid up equity capital of Rs. 39.77 cr. will stand enhanced to Rs. 45.07 cr. With this offer price, the company is looking at a market cap of Rs. 676.04 cr. SRL's current market cap at the last traded price of Rs. 82.4 (as on 30.07.20) on diluted equity stands at Rs. 735.08 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, SRL has (on a consolidated basis) posted turnover/net profit (loss) of Rs. 1021.10 cr. / Rs. - (19.89) cr. (for a period from 08.02.2017 to 31.03.18), Rs. 2215.33 cr. / Rs. - (9.04) cr. (FY19) and Rs. 2671.88 cr. / Rs. - (130.78) cr. (FY20). The company has posted an average EPS of Rs. - (9.55) and the average RoNW of - (49.25%) for the last three fiscals. Thus its asking price is at a negative P/E. Asking price is at a P/BV of 2.18 based on its NAV of Rs. 34.44 as on 31.03.2020.

SRL's cum right quote (on 27.07.20) was Rs. 82.80 per share, and ex-right quote was Rs. 83.40 (on 28.07.20). SRL has posted 52 week's high/low of Rs. 110.76/Rs. 51.92.

CONCLUSION:

While online shopping has flourished amidst COVID-19 pandemic, retail segment met with disaster with lockdown. Retail channel has turned highly competitive with many MNCs like Amazon, Flipkart and the domestic companies like Big Bazaar, Reliance Retail, D-mart. We are witnessing shakeout amongst them due to financial crunch. Considering SRL's negative P/E, cash surplus risk savvy investors may consider parking of funds at their own risk. (Other).

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. Above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

 (SEBI registered Research Analyst-Mumbai).