Marcellus has exited from Galaxy from both Little Champs and Rising Giants portfolios.

Disc. Invested.

You can check on caplin point website

https://www.caplinpoint.net/index.php/products/

Osio Hyper Retail Ltd
A retail chain incorporated in Gujrat but now expand its business to Uttar Pradesh.

• Demand Drivers

1. Growth in Revenue
   The company revenue is compounding with the CAGR of 34% over the last five years. The Current Revenue for the year is 1019 Cr.
   Its Close competitor Spencers Retail at the same time its Revenue at the CAGR of 2.9%

2. Profitable
   The company is profitable with the operating profit margin of 6% and the Return on capital employed is at around 15.10%.

3. Store Network
   The company has the retail space of 7 Lakh Sq. feet, with the store count of 37 stores.
   Its peer Spenser Retail has the total retail space of 14.7 sq. feet.

4. Experienced Promoters
   Dhingra Chopra, whos is the key promoter of the company has the 20 year of experience in the retail industry, he is previously employed with the National Handloom Pvt. Ltd and is responsible for its expansion.

• Challenges

1. Intense Competition
   The organized retail is characteriszed with the intense competetion, many large foreign players trying to panetrate the market, who have deep pockets and are trying to capture a peice of the pie of the market.

2. ONDC threat
   The ONDC is an impending risk that can be a double edge sword, that can help brand to penetrate the market, but at the same time can also put several small retailers in par with the brand, leading to price wars, that leads to margin erosion in the long term.

3. Real Estate
   Finding locations in high street areas are also becoming constraints, specially in Ahmadabad.

Disclosure: Invested

Hi Amit. Thanks for your detailed analysis. You have highlighted some important points. I agree that it will be difficult for an asset that is only 1/3rd operational to be NOI/DPU accretive ordinarily. As I have stated in my response, these metrics are less important from longer-term value creation perspective and the better metric to track for this purpose is the impact that this acquisition will have on Embassy’s NAV. In the valuation report of ESTZ, the valuer has appropriately analysed the cash flow and discount rates for the operational, under-construction and future development parts of the asset to arrive at its gross asset value (GAV). I will also concede that the price at which the sponsor is offering the asset to the REIT is fair at a 6.7% discount to the average GAV arrived at by the two valuers. In FY22, BIRET had acquired sponsor assets in an equal partnership with GIC at a 5.6% discount to GAV.

My real concern is regarding the way the REIT is looking to fund this acquisition. The acquisition will only be NAV accretive if Embassy can complete the QIP at a unit price of Rs375 odd which looks highly unlikely given that the current market price is Rs350. Considering this, it is hard to see how the way that Embassy is looking to finance this acquisition is in the interest of its existing unitholders.

Coming to the point of debt vs equity tradeoff that you have highlighted in terms of their relative costs, I think it would be incorrect to compare the cost of debt vs the distribution yield on additional units that need to issued as the distribution is expected to increase as rent escalations kick in and MTM spreads are realized. More importantly, the 8.5% vs 6% cost argument assumes that dilution will take place at Rs375 which is unlikely as I have highlighted above. Moreover, with a lower unit price, the amount of units that will need to be diluted will be higher than at Rs375 which will further increase the absolute cost of equity financing.

The bottom line, in my opinion, is the dilutive impact that this acquisition will have on Embassy’s NAV which is not in the long term interest of Embassy’s existing unitholders.