Buy Pantaloon Retail – 2QFY2011 Result;Target Rs. 332 :: Angel Broking

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 Pantaloon Retail – 2QFY2011 Result Update

Angel Broking maintains a Buy on Pantaloon Retail with a Target Price of Rs. 332.

Pantaloon Retail (PRIL) reported poor performance for 2QFY2011. The company

reported top-line growth of 31% yoy to `2,759cr backed by robust same-storesales

(SSS) in the lifestyle segment, which grew 20.9% yoy. Value retailing

recorded SSS of 11.5% during the quarter. During the quarter EBITDA margin

declined by 150bp to 8.6% (10.1%). PRIL's presence across price points and

categories places it in a better position than its peers. We maintain a Buy on the

stock.

Retail space expansion on track: In 2QFY2011, PRIL added ~0.8mn sq ft of retail

space taking the total space to ~14.2mn sq ft. We believe that the company’s

retail space expansion is on track, considering the company’s plan to add ~1.2-

1.5mn sq ft in 2HFY2011. The retail space expansion was marginally skewed

towards the value retailing format, which accounted for ~51% of the retail space

addition during 2QFY2011. We believe that improved consumer sentiment

coupled with retail space addition bodes well for PRIL in the long run.

Outlook and Valuation: PRIL is better-placed than its peers on account of having

a presence across price points and categories. Apart from positives like on-track

retail space expansion and revival in consumer sentiment, we believe that the

company's restructuring initiative would enable it to enhance its focus on the

different segments along with providing it good opportunity of value unlocking. At

`278, the stock is trading at 20.5x FY2012E earnings and 1.5x FY2012E P/BV.

We maintain a Buy on the stock, with a revised SOTP Target Price of `332 (`387).

Strong top-line growth continues

PRIL’s core-retail segment reported 31% yoy growth in net sales to `2,759cr.

Higher qoq SSS growth of 11.5% and 20.9% in the value and lifestyle retailing

respectively, during 2QFY2011 (12.5% and 21.7% during 1QFY2011) enabled the

company to post strong top-line growth. The home retailing format also registered

a stellar yoy SSS growth of 18.3% (15.1% growth in 1QFY2011). Growth in the

lifestyle and home retailing formats are encouraging signs, as they clearly indicate

that consumers are opening their wallets for discretionary spending. We believe

that continuation of this trend bodes well for PRIL, thereby enabling it to maintain

its top-line growth, going ahead.

Restructuring on-track; E-Zone in focus

The company proposes to restructure its electronics business under the E-Zone

brand. For the quarter, E-Zone posted loss at the EBITDA level (-6% and `12-13cr).

Management plans to transform E-Zone into a digital platform, close down few of

the existing stores and induct a strategic partner. More clarity on the new business

model is likely to emerge towards June-end 2011, which could comprise

e-retailing and a franchisee model.

Outlook and Valuation

PRIL's presence across price points and categories places it in a better position than

its peers. Apart from positives like on-track retail space expansion and revival of

consumer sentiment, we believe that the company's restructuring initiative would

enable it to enhance its focus on the different segments and also provide it with a

good opportunity of value unlocking. We estimate the company to clock ~22%

and 90% CAGR in revenues and bottom-line respectively, over FY2010-12. At

`278, the stock is trading at 20.5x FY2012E earnings and 1.5x FY2012E P/BV.

PRIL continues to be our top pick in the retail sector. We maintain a Buy on the

stock, with a revised SOTP Target Price of `332 (`387).