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BQEdge | Why Raymond’s Stock May Have Fallen Out Of Fashion And How To Value Spencer’s Retail

BQEdge is specially curated for BQBlue subscribers. Every day this note will offer special equity market and stock-specific insights and flag select emerging trends in the tricky-to-trade derivatives market.

On Today’s Edition:

  • Why Raymond’s stock may have fallen out of fashion.
  • How to value Spencer’s Retail.

Watch | Why Raymond Is Unable To Find The Right Fit?

One Way To Find The Value Of Spencer’s Shares

Spencer’s Retail Ltd. will list on exchanges today along with business process outsourcer CESC Ventures Ltd. after a corporate restructuring at RP Sanjiv Goenka Group’s flagship CESC Ltd.

But how much should the retailer be valued at? This is one way of doing it:

For the six months ended September 2018, Spencer’s total income stood at Rs 1103.6 crore; Ebitda was Rs 18.44 crore; and profit after tax was Rs 0.67 crore. The company didn’t disclose the comparable figures for the same quarter a year earlier.

Based on six-month numbers, the company is expected to post annualised sales of Rs 2,207.2 crore in the year through March 2019, according to BloombergQuint’s calculations.

CLSA pegs an average enterprise value-to-sales ratio of 0.7 times for large retailers globally. Based on that multiple, Spencer’s enterprise value works out to Rs 1,545 crore.

Since the company’s debt was insignificant as of September, the derived equity value works out to Rs 194 per share.

But retail companies’ shares have fallen by nearly 30 percent in the last four months. Applying the correction to Spencer’s gives a share price of Rs 136 apiece. At that price, it will command a market capitalisation of Rs 1,081 crore.

Spencer’s has 146 stores across 36 cities as of December 2018, with 80 percent of the revenues coming from food and grocery. It had a total retail business area of 1.3 million square feet.

The retailer, upon listing, will be a part of the trade-for-trade segment for 10 trading days, and will have a special pre-open session for price discovery. According to the scheme of arrangement, shareholders got six shares of Spencer’s Retail for every 10 held in CESC Ltd. as on Oct. 31, 2018.