PANTALOON RETAIL Festivals perk up sales; Valuations attractive: Edelweiss

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

We recently met the management of Pantaloon Retail (PRIL) to address key investor
concerns. Following are the key takeaways from our interaction:
�� 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.

�� 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).

�� 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).
�� 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’.