Pantaloon - Leading the retail charge ::Macquarie Research

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Pantaloon
Leading the retail charge
Event
 Pantaloon Retail is India’s leading retailer, operating multiple retail formats in
both the value and lifestyle segment. Pantaloon operates over 13.4m sq-feet
of retail space and has over 600 stores.
 Pantaloon’s leading formats include Pantaloons, a chain of fashion outlets,
Big Bazaar, a hypermarket chain, Food Bazaar, a supermarket chain, and
Central, a chain of seamless destination malls. Some of its other formats
include Brand Factory, Blue Sky, aLL, Top 10 and Star and Sitara.

Impact
 First-mover advantage. India’s organised retail sector is in a period of
transformation, and Pantaloon is in a favourable position, considering its firstmover
advantage and scale, to exploit the imminent consumption boom going
forward. It is our view that Pantaloon will emerge as one of the front-runners
in the organised retail space over the long term. It is likely to successfully
survive cut-throat competition through store expansion and JVs with foreign
chains (e.g. Staples, Carrefour) looking to enter the Indian retail space.
 Controlled aggression in expansion. The company is likely to achieve total
retail space under Pantaloon of about 20 m sqf by FY13. Its focus is clearly
going to be on big and profitable formats like Pantaloon, Big Bazaar, Central
and others.
 Improvement seen in Same Store Sales (SSS) growth. After a fall in SSS
growth during most part of the economic slowdown in FY09, SSS growth
recovered in FY10. Pantaloon recorded 12.5% and 21.7% SSS growth in
Value and Lifestyle retailing, respectively, in 1Q’FY11. With better economic
stability, continuation of same store sales growth of the company is expected
to be robust going forward.
 Restructuring to focus on core business. The company has started
restructuring to alleviate investor concerns on diversification of unrelated
businesses. Restructuring initiatives such as hiving off value retail business
into a separate subsidiary have completed; timing of divestment of the
financial businesses is yet to be announced. We believe restructuring of unrelated
business will clear the long-term overhang.

Outlook
 Restructuring holds the key. Pantaloon has restructured its business into
three buckets – Retail, Financial Services and Support businesses. This will
put each of the businesses in self-funding mode, reduce stress on the balance
sheet of Pantaloon Retail, and also provide pure play to the investors. The
company has recently demerged its mall and project management business to
focus on core retail operation.
 The company is currently trading at 15.4x FY12E Bloomberg consensus
earnings. We believe as the retail story spreads across tier-II and III cities, it
will be a well-positioned play on the Indian consumption theme.

Pantaloon Aide Memoire
1. What is your same store sales growth guidance for next couple of years?
2. What are your plans for future growth initiatives like new store openings for Pantaloon?
3. What will be your capex going forward?
4. When do you intend to demerge the unrelated business?
5. Can you throw light on private level contribution to overall sales and profit?
6. What is your guidance for margins going forward?