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Focus on foods, restructuring into a retail pure-play
Overall, Pantaloon expects to achieve 30-35% sales growth (half via new stores) with 8-10% EBITDA margin in FY12.
Current debt is cINR35b, with a target to reduce to INR20b over 18 months by monetising investment in subsidiaries.
Pantaloon is aiming to become a retail pure-play.
HomeTown (home improvements) has been engineered to rely less on imports, making the supply chain more responsive
and lowering working capital. Current sales is INR5000 per sq ft; target is to ramp up to INR7000. HomeTown has also
tied up with realtors to provide fully furnished houses and it will focus on services, ie solutions instead of products. Format
could break even by the end of the year. For electronics (E Zone), the strategy is to lean more towards online sales.
However, given the lower margins, break even is not visible for two years.
Big Bazaar (hypermarket) currently has sales psf of INR8250 (aims to ramp up to INR9500) with 26-27% gross and 6-8%
EBITDA margins. Food is currently c35% of sales, aiming to ramp up to 45-50% in the next 4 years. This will result in
lower margins but higher sales and lower interest cost (due to faster inventory turn).
Valuation and risks
Our target price of INR445 is based on SOTP; standalone company valued at INR384 based on our forward EV/EBITDA
estimate of 9.5x applied to Dec-11e EBITDA. The 55% stake in FCH is valued at INR35, based on current market price
and Home Solutions business is valued at INR26 on DCF. FY10-13e EPS CAGR is 20.0%.
Upside risk: Potential interest cost savings; higher than estimated square feet addition and sales per square feet; business
restructuring and value unlocking at favourable terms. Downside risk: Dip in consumer spending due to macro economic
weakness; execution risk in opening new stores; equity dilution of a higher order or at a lower price; inefficient working
capital management or higher spend on fixed assets; and higher losses in subsidiaries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Focus on foods, restructuring into a retail pure-play
Overall, Pantaloon expects to achieve 30-35% sales growth (half via new stores) with 8-10% EBITDA margin in FY12.
Current debt is cINR35b, with a target to reduce to INR20b over 18 months by monetising investment in subsidiaries.
Pantaloon is aiming to become a retail pure-play.
HomeTown (home improvements) has been engineered to rely less on imports, making the supply chain more responsive
and lowering working capital. Current sales is INR5000 per sq ft; target is to ramp up to INR7000. HomeTown has also
tied up with realtors to provide fully furnished houses and it will focus on services, ie solutions instead of products. Format
could break even by the end of the year. For electronics (E Zone), the strategy is to lean more towards online sales.
However, given the lower margins, break even is not visible for two years.
Big Bazaar (hypermarket) currently has sales psf of INR8250 (aims to ramp up to INR9500) with 26-27% gross and 6-8%
EBITDA margins. Food is currently c35% of sales, aiming to ramp up to 45-50% in the next 4 years. This will result in
lower margins but higher sales and lower interest cost (due to faster inventory turn).
Valuation and risks
Our target price of INR445 is based on SOTP; standalone company valued at INR384 based on our forward EV/EBITDA
estimate of 9.5x applied to Dec-11e EBITDA. The 55% stake in FCH is valued at INR35, based on current market price
and Home Solutions business is valued at INR26 on DCF. FY10-13e EPS CAGR is 20.0%.
Upside risk: Potential interest cost savings; higher than estimated square feet addition and sales per square feet; business
restructuring and value unlocking at favourable terms. Downside risk: Dip in consumer spending due to macro economic
weakness; execution risk in opening new stores; equity dilution of a higher order or at a lower price; inefficient working
capital management or higher spend on fixed assets; and higher losses in subsidiaries.
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