Brandhouse Retails Ltd.

A unique business model, low valuations and potential opportunities from foreign brands wanting to gain a foothold in Indian markets make the stock of Brandhouse Retails an attractive bet at the current valuations.

Brandhouse Retails Ltd. (Brandhouse) is a part of S.Kumar’s Group and is one of India’s leading retail master franchisers. The Company is involved in developing and managing Exclusive Brand Outlets (EBOs)  for a multiple set of brands. BHRL currently carries a host of reputed brands that cater to various segments of the Indian retail market. The brands under the BHRL umbrella include Reid and Taylor, Stephens Brothers, Carmichael House, Belmonte, and Dunhill.

Reid & Taylor: - is a 165 year old brand from Scotland and was launched in India in 1999. The brand today is a premium suiting & apparel brand enjoying high Brand Equity.

Belmonte: - is a combination of fabric & apparel in the mid price segment.

Carmichael House: - Carmichael House the mid-premium home linen brand.

Stephens Brothers: -is a super premium brand and is a JV between S.Kumar Nationwide & Austin Reed, UK.

Dunhill:-is a luxury brand in Mens Apparel & Accessories.

The company has been expanding its own store network – the company currently has 784 stores in over 90 cities. The store information relating to the various Brand Outlets is tabulated below :-

Investment Rationale & Conclusion

Brandhouse Retails is a retail play for retailing International brands in the Indian market. The company’s retail network is spread not just in the Metros & mini Metros but also Tier II and Tier III cities. The company has been on a growth path – both in terms of addition of stores and also improved Revenues and Profits.  As part of its strategy to enhance earnings, the company is expanding its own store network and is focused on improving key operational matrix which includes better working capital management, higher per square foot sales, improving same store sales and new store expansions.

For the first 9 months of FY 10, the company has achieved Revenues of Rs.504 crores with a PAT of Rs.19.27 crores. This translated into annualized EPS of roughly Rs.5. The stock currently trading at Rs.30 is therefore available at a PE multiple of 6. This is far lower than the peer group which commands a PE multiple of anywhere between 15 and 50. Also with a store network of 784 and combined store area of roughly 9.0 lakh square feet, the company with its current market cap of Rs.160 crores is grossly undervalued when compared with various other companies in the peer group.

As India growth story continues, disposable income in Indian household and spending power is growing. This augurs well for the Indian Retail sector and many foreign companies may be looking at entering the Indian markets since the markets in their countries may be saturating.

The opportunities for the company may come in from various International Brands wanting to get a foothold in the Indian markets. The company has successfully demonstrated its capabilities in opening of retail stores for various foreign brands, and has gained knowledge and experience of the Indian Retailing markets. This knowledge and experience may strengthen the company’s bargaining power.

Investors may choose to accumulate the stock at the current levels and on declines.

Disclaimer: Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at [email protected].