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UBS Investment Research
Pantaloon Retail (India) Ltd.
Takeaways from management call
„ Opportunities ahead for modern retail
Management believes that modern retail can grow to $20-25bn in next 7-8 years.
There remains the opportunity to unlock value through strategic partnership with
foreign retailers once FDI opens. GST implementation will aid consumption
growth and lower cost structures for retailers.
„ PRIL action plan
PRIL action plan is: 1) to expand retail space by 2.5-3mn sq/feet pa for three years,
2) restructure the group to enable FDI in its pure retail business 3) improve
efficiencies of resources including incremental capital and 4) increase share of high
margin business to 45% from 40% in next 3-5 years.
„ Location advantage
We believe PRIL’s key strength is the location advantage it offers - majority of its
retail space is in key 8-10 cities and at attractive locations. We believe in a space
constraint country, location advantage becomes very relevant. We expect PRIL to
continue to expand retail space in strategic locations.
„ Valuation: Maintain Buy and price target of Rs. 550
Key takeaways
UBS corporate access organised call with PRIL management including Mr.
Kishore Biyani (Founder & MD) and Mr.B.Anand (Director-Finance). Key
takeaways from the call are:
The opportunity:
In developed markets the proportion of leading retailers turnover to Country’s
GDP is close to 1-3%. In FY10, PRIL share in India’s GDP is +0.1%.
Management believes that there is an opportunity to grow the share to ~1% of
GDP in next ten years.
Mgmt. identified opening of foreign direct investment (FDI) in multi brand retail
as another key catalyst for which it is gearing up in order to form strategic
partnerships.
Goods and service tax (GST) implementation also presents a big opportunity for
Indian consumption growth and reduction of cost structures for the
manufactures/retailers.
PRIL action plan:
Management plans to end the year with 165-170 (Big Bazaar), 61 (Pantaloon)
and 18 (Central) stores from the current 147, 52 and 16 of Big Bazaar, Pantaloon
and Central respectively. For the medium term, Company intends to add 2.5-3m
sq/feet p.a.of retail space for three years.
Management indicated that they have achieved significant efficiencies on the
supply chain, logistics and distribution side. In addition, they plan to achieve
similar efficiencies on incremental capital investments they make going forward.
They plan to add $600-700mn of retail business with lower capital (relative to
what they used in past).
Management mentioned that they plan to change the product mix in favour of
higher margin business (fashion + furniture) to 45:55 from the present 40:50 in
the next three to five years. In addition, they would attempt to increase the share
of private brands in the lower margin business (food + electronics) in order to
help increase margins.
Location advantage
We believe PRIL’s key strength is the location advantage it offers - majority of
its retail space is in key 8-10 cities and at attractive locations. We believe in a
space constraint country, location advantage becomes very relevant. We expect
PRIL to continue to expand retail space in strategic locations.
Q Pantaloon Retail (India) Ltd.
Pantaloon is India's largest listed retailer. It is rapidly building retail capacity in
its two main retailing formats: lifestyle and value retailing. In the lifestyle
segment, its Pantaloon stores and the upcoming Central stores offer apparel and
fashion items targeting the middle-income market. Its Big Bazaar discount
stores target the price-conscious apparel and grocery markets (the latter through
the Food Discount brand).
Q Statement of Risk
The retail sector, including Pantaloon, is closed to foreign competition, but this
could change. The entry of large format foreign retailers with skills in
merchandising and supply chain management could affect the sales and margins
of Indian companies such as Pantaloon.
We value PRIL through a sum-of-the-parts valuation. We ascribe Rs.490 to the
core business. We value PRIL’s holding in FCH at Rs35/share, based on its market
value. We value Future Generali Insurance at Rs23/share.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Pantaloon Retail (India) Ltd.
Takeaways from management call
„ Opportunities ahead for modern retail
Management believes that modern retail can grow to $20-25bn in next 7-8 years.
There remains the opportunity to unlock value through strategic partnership with
foreign retailers once FDI opens. GST implementation will aid consumption
growth and lower cost structures for retailers.
„ PRIL action plan
PRIL action plan is: 1) to expand retail space by 2.5-3mn sq/feet pa for three years,
2) restructure the group to enable FDI in its pure retail business 3) improve
efficiencies of resources including incremental capital and 4) increase share of high
margin business to 45% from 40% in next 3-5 years.
„ Location advantage
We believe PRIL’s key strength is the location advantage it offers - majority of its
retail space is in key 8-10 cities and at attractive locations. We believe in a space
constraint country, location advantage becomes very relevant. We expect PRIL to
continue to expand retail space in strategic locations.
„ Valuation: Maintain Buy and price target of Rs. 550
UBS corporate access organised call with PRIL management including Mr.
Kishore Biyani (Founder & MD) and Mr.B.Anand (Director-Finance). Key
takeaways from the call are:
The opportunity:
In developed markets the proportion of leading retailers turnover to Country’s
GDP is close to 1-3%. In FY10, PRIL share in India’s GDP is +0.1%.
Management believes that there is an opportunity to grow the share to ~1% of
GDP in next ten years.
Mgmt. identified opening of foreign direct investment (FDI) in multi brand retail
as another key catalyst for which it is gearing up in order to form strategic
partnerships.
Goods and service tax (GST) implementation also presents a big opportunity for
Indian consumption growth and reduction of cost structures for the
manufactures/retailers.
PRIL action plan:
Management plans to end the year with 165-170 (Big Bazaar), 61 (Pantaloon)
and 18 (Central) stores from the current 147, 52 and 16 of Big Bazaar, Pantaloon
and Central respectively. For the medium term, Company intends to add 2.5-3m
sq/feet p.a.of retail space for three years.
Management indicated that they have achieved significant efficiencies on the
supply chain, logistics and distribution side. In addition, they plan to achieve
similar efficiencies on incremental capital investments they make going forward.
They plan to add $600-700mn of retail business with lower capital (relative to
what they used in past).
Management mentioned that they plan to change the product mix in favour of
higher margin business (fashion + furniture) to 45:55 from the present 40:50 in
the next three to five years. In addition, they would attempt to increase the share
of private brands in the lower margin business (food + electronics) in order to
help increase margins.
Location advantage
We believe PRIL’s key strength is the location advantage it offers - majority of
its retail space is in key 8-10 cities and at attractive locations. We believe in a
space constraint country, location advantage becomes very relevant. We expect
PRIL to continue to expand retail space in strategic locations.
Q Pantaloon Retail (India) Ltd.
Pantaloon is India's largest listed retailer. It is rapidly building retail capacity in
its two main retailing formats: lifestyle and value retailing. In the lifestyle
segment, its Pantaloon stores and the upcoming Central stores offer apparel and
fashion items targeting the middle-income market. Its Big Bazaar discount
stores target the price-conscious apparel and grocery markets (the latter through
the Food Discount brand).
Q Statement of Risk
The retail sector, including Pantaloon, is closed to foreign competition, but this
could change. The entry of large format foreign retailers with skills in
merchandising and supply chain management could affect the sales and margins
of Indian companies such as Pantaloon.
We value PRIL through a sum-of-the-parts valuation. We ascribe Rs.490 to the
core business. We value PRIL’s holding in FCH at Rs35/share, based on its market
value. We value Future Generali Insurance at Rs23/share.
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