India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Pantaloon Retail (PF IN, INR 372, Buy)
We recently met the management of Pantaloon Retail (PRIL) to address key investor concerns. Following are the key takeaways from our interaction:
n Gradual restructuring underway
PRIL has completed the listing of Future Mall Management and has merged Home Solutions Retail India Limited (HSRIL) into itself. Company is also planning to hive off Future Capital by September 2011. However, demerger of the insurance arm is contingent on approval of Insurance Regulatory and Development Authority (IRDA). Promoters on board provide strategic vision and all key functions are now being run by professionals with relevant experience.
n Expansion plans on track; 2.0 mn sq ft expansion in FY11E likely
The company had added 0.12 mn sq ft retail space during Q1FY11, much below market expectations. The number appears lower due to re-statement of business, which affected new space addition (eZone was in Central earlier, but is in Home Format now). According to company, core retail business’ operational retail space expanded to ~14 mn sq ft by 31st December 2010 and they are on track to add ~2.0 mn sq ft per year. Company expects ~25-30% sales growth in FY11 (equal proportion from same store sales (SSS) growth and space addition).
n Food Bazaar focus to yield higher sales; working capital to improve
Contribution of Food Bazaar to total sales is set to increase from ~35% currently to ~50% in the next four-five years. The company has increased focus on this Food Bazaar category because of higher inventory turns compared to fashion (hence, will generate cash quickly), negative working capital and best in class sales/sq ft (~INR 14,000). This, in turn, will ensure sustained internal accruals and lower dependency on debt (cost of debt ~10.6%; average tenure ~4 years).
n Outlook and valuations: Positive; maintain ‘BUY’
Given PRIL’s focus on calibrated profitable growth, robust expansion plans and sharp correction in the stock price, we are bullish on the company. Post Q2FY11 results and the recent bribes-for-loan ‘scam’, the stock has corrected and, we believe this is a good entry point. We are bullish on the company’s prospects and maintain ‘BUY’ recommendation on the stock. On relative return basis, we rate the stock ‘Sector Performer’.
No comments:
Post a Comment