Morgan Stanley Research on India Retail- prefer Pantaloon and Titan

India Retail: Improving Same Store Trend Driving Efficiencies Across Retail Formats
Strong same store growth-led performance: We
expect Pantaloon and Titan to demonstrate 34% and
42% earnings growth during the September 2010
quarter driven by improved underlying Same Store
Sales growth across retail formats.
Titan: Watches expected to demonstrate 10%
revenue growth and jewellery 38%: After three
quarters of strong revenue growth in the watches
business, Titan is likely to demonstrate relatively muted
revenue growth of around 10% in 2QF11, we believe.
The jewellery business, however, will continue to
surprise on the upside, in our view, driven by
1. Expansion of retail space 2. Positive consumer
sentiment driving same store volume growth 3. Gold
price increase of around 23% YoY 4. Improved product
mix driven by studded jewellery growth and 5. Favorable
base effect.
We expect Titan to deliver an overall revenue, EBITDA
and net profit growth of 32%, 44% and 42% respectively.

Pantaloon: Sustained improvement in consumer
confidence driving strong same store sales growth:
We expect PRIL to post a revenue growth of 46% this
quarter driven by inclusion of its home retailing format
and double digit same store sales growth. We expect
operating profit and adjusted net profit growth of 27%
and 34% respectively in Q1F11. Operating profit
margins are likely to dip by 140bps due to the inclusion
of lower margin home business but a 200bps lower tax
rate will drive YoY earnings growth of 34%, we believe.
The Retail sector could beat our earnings estimates:
In our view, Titan and Pantaloon should be beneficiaries
of higher consumer disposable incomes. Against the
backdrop of improving consumer sentiment, risk to our
estimates is to the upside, we believe. We reiterate our
Overweight rating on Pantaloon and Titan.