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PANTALOON RETAIL
OUTPERFORMER (RS246, MCAP: RS51BN / US$1.1BN)
• Retail space expansion at ~2m in FY11: Pantaloon Retail (PF) is India’s largest retailer, with 13.2m sqft of retail space
as of FY10 (June year-end). It added 0.85m sqft in H1FY11 and is expected to add another 1m-1.1m sqft in H2FY11
across select formats – Big Bazaar, Food Bazaar, Central, Pantaloons, Home Town and Brand Factory. Given its
electronic retailing format, e-zone, continues to incur losses, it may not increase stores. The overall retail space
addition is lower than our earlier estimate of 2.2m for the current year.
• Double digit same-store-sales growth: While overall space addition is a tad slower than our expectations and
company guidance, SSS growth continues to remain upbeat helped by inflation. In terms of value, SSS growth across
formats has been in double digits. Though December 2010 was slow, growth bounced back to double-digit levels in
January. We expect it to stabilize at 6-7% in FY12 as the base effect of inflation comes into play. We expect slow offtake
in consumer electronics.
• Margins at 8.5-9%: Within core retail, the value retail and home solutions segments have been growing the fastest.
Both the segments have lower margins than fashion retailing. This, coupled with inflation-led growth, would keep
margins under pressure. We expect 8.4% margins in Q2FY11, as against 8.2% in Q1FY11. We see margins at 8.5-9% in
the next couple of years.
• Working capital management key to improving balance sheet health: With increased festive season inventory, PF’s
debt in the retail business has gone up to Rs35bn. While PF is focusing on improving working capital through efficient
inventory management – SKU rationalization, auto replenishment, procurement planning, etc – it will be some time
before results are visible. PF is aiming to bring down its inventory levels from 95-100 days currently to 75 days in the
next three years. This would help release over Rs15bn of cash flow and help fund expansion. We expect 80% of the
next three years’ capex to be funded through internal cash generation.
• Restructuring and monetization: PF has completed the first phase of restructuring by bringing the home solutions
business under the standalone entity and transferring value retail to a subsidiary to keep room for foreign
participation when FDI norms ease. The company is now divesting the Future Capital business and transferring the
proportionate shareholding to the investors of PF. It is also mulling options to demerge the cash guzzling Future
Generali business, a process that could face regulatory hurdles. PF is also likely to scout for options to deleverage the
core retail balance sheet through stake sale in a few of its ventures like logistics, e-commerce, real estate, etc.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PANTALOON RETAIL
OUTPERFORMER (RS246, MCAP: RS51BN / US$1.1BN)
• Retail space expansion at ~2m in FY11: Pantaloon Retail (PF) is India’s largest retailer, with 13.2m sqft of retail space
as of FY10 (June year-end). It added 0.85m sqft in H1FY11 and is expected to add another 1m-1.1m sqft in H2FY11
across select formats – Big Bazaar, Food Bazaar, Central, Pantaloons, Home Town and Brand Factory. Given its
electronic retailing format, e-zone, continues to incur losses, it may not increase stores. The overall retail space
addition is lower than our earlier estimate of 2.2m for the current year.
• Double digit same-store-sales growth: While overall space addition is a tad slower than our expectations and
company guidance, SSS growth continues to remain upbeat helped by inflation. In terms of value, SSS growth across
formats has been in double digits. Though December 2010 was slow, growth bounced back to double-digit levels in
January. We expect it to stabilize at 6-7% in FY12 as the base effect of inflation comes into play. We expect slow offtake
in consumer electronics.
• Margins at 8.5-9%: Within core retail, the value retail and home solutions segments have been growing the fastest.
Both the segments have lower margins than fashion retailing. This, coupled with inflation-led growth, would keep
margins under pressure. We expect 8.4% margins in Q2FY11, as against 8.2% in Q1FY11. We see margins at 8.5-9% in
the next couple of years.
• Working capital management key to improving balance sheet health: With increased festive season inventory, PF’s
debt in the retail business has gone up to Rs35bn. While PF is focusing on improving working capital through efficient
inventory management – SKU rationalization, auto replenishment, procurement planning, etc – it will be some time
before results are visible. PF is aiming to bring down its inventory levels from 95-100 days currently to 75 days in the
next three years. This would help release over Rs15bn of cash flow and help fund expansion. We expect 80% of the
next three years’ capex to be funded through internal cash generation.
• Restructuring and monetization: PF has completed the first phase of restructuring by bringing the home solutions
business under the standalone entity and transferring value retail to a subsidiary to keep room for foreign
participation when FDI norms ease. The company is now divesting the Future Capital business and transferring the
proportionate shareholding to the investors of PF. It is also mulling options to demerge the cash guzzling Future
Generali business, a process that could face regulatory hurdles. PF is also likely to scout for options to deleverage the
core retail balance sheet through stake sale in a few of its ventures like logistics, e-commerce, real estate, etc.
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