Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PANTALOON RETAIL
Sales robust; needs to address concerns on rising debt, slow restructuring
Revenue in line led by buoyant festive season, robust same store sales
Pantaloon Retail’s (PRIL) core retail business revenues jumped 31.2% Y-o-Y, to
INR 27.5 bn (our expectation INR 25.2 bn) in Q2FY11 (December quarter).
Same store sales (SSS) rose 11.5% in value retailing, 20.9% in lifestyle retailing
and 18.3% in home retailing Y-o-Y, primarily led by buoyant festive season.
However, the company reported modest PAT growth of 5.5%, to INR 472 mn,
below our expectation, led by rise in interest expenses. Robust sales growth
continued in Q3FY11, with record sales in January (over INR 12,000 mn).
Robust EBITDA growth; EBITDA margins down, led by higher COGS
EBIDTA grew a robust 12.1% Y-o-Y, to INR 2.3 bn; however, EBITDA margins
dipped 147bps Y-o-Y, to 8.6%, primarily led by COGS inflation (216bps). Also,
increased share of lower margin food business in overall sales hit margins (as
pointed in our visit note dated January 06, 2011). This was partially offset by
lower employee cost (19bps) and other expenses (50bps).
E-Zone to be hived off; in spite of seven stores opened in H1FY11
PRIL experienced lower margin realisation, higher competition, reduced
bargaining power in the electronic category. Hence, it plans to hive off this
business and intends to transform it into digital commerce rather than physical
trade, which could reduce the inventory. Debt of INR 1,500 mn and inventory of
INR 1,400 mn, which will shift to this new entity, will be positive for PRIL’s
balance sheet. In spite of seven new stores opened in H1FY11, a sudden change
in the company’s strategy to hive off E-Zone, looks surprising to us.
Expansion plans on track; 0.8 mn sq ft added in Q2FY11
PRIL added 0.8 mn sq ft retail space in Q2FY11, taking total space to 14.17 mn
sq ft, testimony to the company’s improved expansion against Q1FY11 (gross
addition of 0.4 mn sq ft). The company added 5 pantaloon stores, 2 Central, 7
Big Bazaar, 8 Food Bazaar and 36 KB’s fair price during Q2FY11. It also shut
down 2 Food Bazaar and 1 Brand Factory due to their poor performance.
Outlook and valuations: Positive; maintain ‘BUY’
Given PRIL’s focus on calibrated profitable growth, robust expansion plans and
sharp correction in stock price, we are bullish on the company. Although we are
positive, the burgeoning debt and slow restructuring remain key concerns. The
stock has corrected significantly and offers good entry point at present, in our
view. We maintain ‘BUY/ Sector Performer’ on the stock.
Gradual restructuring underway; E-Zone to be hived off
PRIL has completed the listing of Future Mall Management and has merged Home
Solutions Retail India (HSRIL) into itself. The company is also planning to hive off Future
Capital by September 2011 and E-Zone by July 2011. However, demerger of the
insurance arm is contingent on approval of Insurance Regulatory and Development
Authority (IRDA).
Expansion plans on track; 0.8 mn sq ft added in Q2FY11
PRIL added 0.8 mn sq ft retail space during Q2FY11, taking the total space to 14.17 mn
sq ft, testimony to the company’s improved expansion against Q1FY11 (gross addition of
0.4 mn sq ft). The company added 5 pantaloon stores, 2 Central, 7 Big Bazaar, 8 Food
Bazaar and 36 KB’s fair price during Q2FY11. It also shut down 2 Food Bazaar and 1
Brand Factory due to their poor performance.
Robust EBITDA growth; EBITDA margins down, led by higher COGS
EBIDTA grew a robust 12.1% Y-o-Y, to INR 2.3 bn; however, EBITDA margins dipped
147bps Y-o-Y, to 8.6%, primarily led by COGS inflation (216bps). Also, increased share
of lower margin food business in overall sales hit margins (as pointed in the visit note
dated January 06, 2011). This was partially offset by lower employee cost (19bps) and
other expenses (50bps).
Pantaloon Retail: Q2FY11 (June ending): Key takeaways from concall
• Confident of consumer demand: Sales growth is likely to remain buoyant in the
coming quarters with December quarter having the positive impact of a delayed onset
of Diwali. PRIL remains bullish on the India consumption story. In high inflation
scenario, the company expects modern retail to do well over the medium-to-long
term. January 2011 has been quite good, with the company recording best ever sales
(INR 12 bn). The company again stressed on profitable growth.
• E-Zone
The company is planning change in strategy in this format as margins here are
extremely thin and there is requirement for high inventory
Competitive intensity has increased sharply (in our view from Croma of Tata
group) and Pantaloon is not the leader
Bargaining power for PRIL is extremely low (as top three consumer durable
brands contribute 55% to revenues)
Also, the company did not see significant growth in this format in December and
January. Saw ~20% Y-o-Y growth in Q2FY11
Negative EBITDA margin of 6% at store level and EBITDA loss of INR 120 mn
The company plans to bring a partner in this format and will divest stake
(partner will infuse funds) and transform it into digital commerce rather than
physical trade. This would ensure reduced inventory
The company will shut down ~9 stores out of the present 51 stores
It plans to expand smaller format size of 1500-2000 sq ft stores, which will
become the flagship stores and will be used for showcasing key SKUs and for
delivery and bill collection
Will be hived off by July 01, 2011.
Debt of INR 1,500 mn, inventory of INR 1,400 mn will get shifted to this hived
off entity.
Mobile handset sales have slowed down.
• KB’s Fair Price
Focused only in two cities viz. Mumbai and Delhi. Bangalore has 28 stores and
not planning to expand further
Has one of the highest per sq feet sales in the industry
Only 350 SKUs
Does not sell perishable goods like milk, eggs, butter etc
Success will largely depend on private labels.
Food Park in Bangalore will be a key help as most of the vendors will be based
here leading to saving on logistics.
• Hometown: The management expects Hometown to be next growth driver and
contribute 10,000 mn to topline in FY12. The business is gaining traction in
readymade kitchens. This business is in steady state, and if current growth trends
continue, will have one of the highest ROCE. The new management of Hometown,
headed by expat Mark, has done quite well and is looking promising. The company is
upbeat, since it does not expect competition for the next three years.
• Expansion: As per the management, new space added in H1FY11 is 1.2 mn sq ft
(0.40 mn sq ft in Q1FY11 and 0.80 mn sq ft in Q2FY11). It plans to add ~1.5 mn sq
feet in H2FY11 and is confident of adding 2.5-3 mn sq ft in FY12. Also, the company
will add 8-9 stores in the Pantaloon format and ~30 in Big Bazaar on an annual basis.
The company will not expand Home Town and Food Bazaar.
• Raw material cost inflation: Company is seeing huge cost inflation in many key
raw materials like Cotton (up by 30-40% YoY); and also plastics, polymers have gone
up. Also, China, which is a key supplier, has cut down on manufacturing in some raw
materials.
• Debt: Net debt INR 34,000 mn (December 2010, gross debt INR 35,000 mn) vis-avis
INR 32,000 mn (December 2009).
• Interest cost
Credit rating upgraded to ‘A’.
75% of debt at fixed rate, with average maturity of 3.5-3.6 yrs, taking the
blended interest rate to 10.8%.
• Inventory: The current level of inventory is 98 days. The company maintained
inventory at such high level, in anticipation of increased sales in republic day sales
season, high capacity expansion and World Cup related merchandise (INR 500 mn).
However, as per the management, the inventory level will be brought down to 90
days in June 2011.
• Loans and advances: High Loans and advances can be attributed to expansion in
retail, as 6-9 months deposit needs to be paid while booking the property.
• Working capital: Targets to reduce it by INR 3,000 mn by June 2011. This, the
company feels is achievable, but with 3-6 months delay viz. by December 2011.
• Capex: The company has spent significantly in H1FY11, amounting to INR 4,500 mn.
The company further plans to spend INR 3000 mn in H2FY11.
• Debt/Equity: For core retail 1.06.
• E-Commerce: INR 6,500 mn to be incrementally invested in E-Commerce. However,
funds would be brought in by other investors.
• Future venture: Cash inflow to future venture is INR 1,500 mn every year. The
company plans to monetise it, going ahead, as it believes future venture has made
strategically significant investment.
• Insurance: Insurance business requires 500 mn every quarter.
• Logistics business: The company will get second round of funding in logistics
business by March.
• GST: The company is prepared for GST, which will be extremely positive for it. Post
GST implementation, the company will need to have only 20 warehouses from
current 67.
Home solutions business
HomeTown, the home solutions arm of Pantaloon Retail, is looking at break-even in FY11
(June ending) and a sales of INR 10 bn by FY 12. HomeTown is a first-of-its-kind home
improvement retail format in India that provides one-stop home-making solutions. Also
company was contemplating opening newer formats in the mid-segment for Tier II and
III cities. It is looking at smaller formats and the plan is to open about 50 such stores in
the next 2-3 years. These will be much smaller in size at 20,000 sq ft per store. These
stores would be named either HomeTown Zip or HomeTown Local.
Future Supply Chain
Future Supply Chain, subsidiary of Pantaloon Retail (Pantaloon holding 94.8% stake) has
signed up ~350 customers. Future Supply Chain Solutions caters to ITC, HUL and this
has helped it to raise its share of non-Future Group revenues by 10% to 30%. This will
move up to 50 per cent by June 2011. Future Supply Chain focuses on solutions for four
main consumer sectors — fashion, food, home and general merchandise — for which it
has developed 30 supply chain solutions that cater to their own unique needs.
Future’s bargaining power with FMCG suppliers
The company has stopped fresh orders of brands belonging to Reckitt Benckiser, the
maker of popular household brands such as Dettol and Harpic, in response to Reckitt’s
cut in retailers’ margins to 14% from 16% on some of its products to partly offset rising
input costs. Less than 10% of Reckitt’s total revenues come from organised retailers
now, although this figure grew nearly 30% last year. This can prove to be positive for
private brands of Future group, however it needs to be watched if Pantaloon is able to
maintain margins.
Key management profile- Professional management
According to the company, promoters on board provide strategic vision and all key
functions are now being run by professionals with relevant experience. Below is a brief
profile of key management hires.
Mr. Kishore Biyani, Group CEO, Future Group
• Over 25 years of experience and has led the group’s transformation from a apparel
distributor to a multi-format retail chain.
• Recipient of several awards in the field of retail and entrepreneurship.
Mr. Shailesh Haribhakti, Chairman of the board, PRIL
• Deputy Managing Partner of Haribhakti & Co., Chartered Accountants, and is the
only Indian member on the Standards Advisory Council of the IASB.
• He is also serving on the board of several reputed public companies.
Mr. Kailash Bhatia, Wholetime Director, PRIL
• Has over three decades of experience in the fashion business and was the cofounder
of the ColorPlus brand.
• He was earlier associated with Weekender, Arvind Mills and Mafatlal Industries.
Mr. Rakesh Biyani, Wholetime Director, PRIL
• Has over two decades of experience in fashion and retail.
• Currently, leads the operations and expansion of the group’s leading formats and is
actively involved in category management, international alliances, stores operations,
and IT.
Mr. Sanjeev Agarwal, Joint CEO, Future Value Retail
• He has over 20 years of experience and prior to joining PRIL, he has worked with
Hindustan Lever, P&G, Godrej Soaps and Balsara Home Products. He completed his
engineering from Institute of Technology, Banaras Hindu University and holds a
postgraduate diploma in management in marketing and finance from IIM (L). He
joined PRIL in April 2003 and was President, Marketing, and more recently, CEO,
Pantaloons.
Mr. Sadashiv Nayak, Joint CEO, Future Value Retail
• Mr. Nayak has over 14 years of experience and has previously worked with
Hindustan Lever and Asian Paints. He holds a bachelor’s degree in engineering from
KREC, Surathkal, and an MBA in Marketing from XLRI, Jamshedpur. He is
responsible for the P/L and operations of South and East zones and managing and
growing independent Food Bazaar stores. He joined PRIL in July 2004 and was the
Zonal Head, West Zone and CEO, Big Bazaar.
Mr. Vishnu Prasad, CEO, Central & Brand Factory
• Mr. Prasad holds a bachelor’s degree in commerce from Nagarjuna University and an
MBA in Marketing from Pune University. He joined the company in March 2001 and
has 26 years of experience. Prior to joining the company he worked with Arvind
Mills.
Mr. C.P. Toshniwal, CFO, PRIL
• He has over 15 years of work experience in various companies. He is a qualified CA
and Company Secretary.
Mr. Anshuman Singh, MD & CEO, FSCS
• Mr. Singh is a mechanical engineer and MBA and has over 17 years professional
experience and has successfully created and led organizations in the field of retail as
well as supply chain and logistics. Prior to his current assignment, he was the
Director and CEO of Welspun Retail. Mr. Singh has earlier worked in various
organizations of repute like Grasim, H&R Johnson and Bombay Dyeing.
Ms. Vibha Rishi: Group Strategy and Consumer Director, Future Group
• Ms. Rishi has nearly 20 years of experience in the field of marketing. She leads all
marketing, communication and customer strategy for the Future Group. She began
her career with Tata Administrative Services and later joined the start-up team of
PepsiCo, India, in 1989. She spent over 17 years with the company in India and
overseas and has served at various senior management roles. She left as Vice
President, Innovation, PepsiCo International, UK. She is an alumnus of the Faculty of
Management Studies, University of Delhi.
Mr. Damodar Mall: Director, Integrated Food Strategy, Future Group
• With over two decades of experience in FMCG and food industry, Mr. Mall was the
co-founder of D’Mart , a supermarket chain in Mumbai, and was associated with
Hindustan Uniliver for over 12 years. He is an alumnus of Indian IIT (Mumbai) and
IIM (Bangalore).
Mr. Santosh Desai: MD & CEO, Future Brands India
• Mr. Desai has over 21 years of experience in advertising. He was the President of
McCann-Erickson, India, prior to his association with the Future Group. He has been
invited as a key note speaker at advertising forums in India and overseas and has
addressed the global management boards of several multinationals including
Hershey’s, Microsoft, Philip’s, Unilever, Coke etc. Mr. Desai is an alumnus of IIM
Ahmedabad.
Mr. Devdutt Pattanaik: Chief Belief Officer, Future Group
• Mr. Pattanaik is a medical doctor by education, a leadership consultant by profession
and a mythologist by passion. He has 14 years experience in the health care
industry with organizations such as Sanofi Aventis and Apollo Healthcare. He has
written and lectured extensively on the nature of sacred stories, symbols and rituals
and their relevance in modern times.
Mr. B Anand: Director Finance, Future Group
• Mr. Anand has nearly 22 years of experience in corporate finance and banking
across diversified business groups. Prior to joining the group, he was President-
Corporate Finance, Vedanta Resources Group. He has been associated with Motorola
India, Credit Lyonnais, HSBC, IL&FS, Citibank etc. Mr. Anand holds a degree in
commerce and is a qualified Chartered Accountant.
Mr. Sanjay Jog: Chief People Officer, Future Group
• Mr. Jog has over 25 years of experience in human resources, having worked with
companies like DHL, Taj Hotels Group, and RPG Enterprise. He holds an MBA in
Human Resources from Pune University.
Mr. Raghu Pillai, CEO, Future Value Retail & Executive Board Member, Future
Group
• Considered to be a stalwart in the retail business, Mr. Pillai is credited to have set up
RPG Group’s retail business as well as till recently Reliance Group’s retail foray. He
joined Future Group in October 2010 and leads the retail divisions of Big Bazaar,
Food Bazaar, KB's Fairprice, Aadhar, Home Town, and eZone.
Company Description
PRIL is a leading Indian retail company with presence across most sectors of organized
retail. The company, entered modern retail in 1997 with the opening of its department
store format Pantaloons. In 2001, PRIL launched Big Bazaar, a hypermarket chain,
followed by Food Bazaar, a supermarket chain. A five format company, two years back,
it now operates over 20 formats which include Central (seamless malls located in city
centers), Collection I (home improvement products), Depot (books, music, gifts and
stationeries), aLL (fashion apparel for plus-size individuals), Shoe Factory (footwear),
and Blue Sky (fashion accessories). It has recently launched its e-tailing venture,
futurebazaar.com. The company, currently, operates over 14.17 mn sq ft of retail space.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and
economic factors. Despite the slowdown expected in real GDP growth in the near term,
the long term prospects backed by changing consumer behaviour in favour of larger
discretionary spend, has set the stage for a healthy growth in the retail space over the
next five years. The big opportunity lies in the growing share of organised retail with the
growing trend among consumers to allocate a larger share of income to consumption and
gradual improvement in lifestyle.
PRIL has established strong presence across multiple consumption categories in a bid to
capture maximum consumer wallet share. It has also successfully incubated allied
businesses derived from the retail business or which support the core retail business in
subsidiaries like Future Media, Future Logistics, Future Bazaar, Future Capital Holding
(FCH), Future Ventures, and Future Knowledge Services. We believe PRIL has the ability
to create significant value with its large scale of operations and proven execution track
record.
Key Risks
Slow revenue growth due to rollout delays and poor same store growth
A large number of retailers are facing delays in roll outs due to delays by developers.
This is a significant risk and can lead to cost overruns. The delays on account of other
retailers could also impact PRIL as malls will not be viable unless all tenants are tied in.
The company’s same store sales as a whole have been falling steadily due to rising
competition. Continued sharp decline in the same in the future will be a risk to the
company’s growth.
Pressure on margins due to competition
With increasing competition, catchment areas are shrinking and the PSFPAs are not
scaling up as expected. Coupled with this, the shortage of quality retail space leading to
spiraling rentals, underdeveloped supply chain, and rising employee costs, which could
add to the cost and impact the company’s margins.
Macro slowdown
Macro concerns could hamper domestic consumption trends and result in lower footfalls.
Rising share of debt
Going forward, the company will have to depend primarily on debt for funding growth.
Steep increase in cost of borrowing can impact the profitability of the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PANTALOON RETAIL
Sales robust; needs to address concerns on rising debt, slow restructuring
Revenue in line led by buoyant festive season, robust same store sales
Pantaloon Retail’s (PRIL) core retail business revenues jumped 31.2% Y-o-Y, to
INR 27.5 bn (our expectation INR 25.2 bn) in Q2FY11 (December quarter).
Same store sales (SSS) rose 11.5% in value retailing, 20.9% in lifestyle retailing
and 18.3% in home retailing Y-o-Y, primarily led by buoyant festive season.
However, the company reported modest PAT growth of 5.5%, to INR 472 mn,
below our expectation, led by rise in interest expenses. Robust sales growth
continued in Q3FY11, with record sales in January (over INR 12,000 mn).
Robust EBITDA growth; EBITDA margins down, led by higher COGS
EBIDTA grew a robust 12.1% Y-o-Y, to INR 2.3 bn; however, EBITDA margins
dipped 147bps Y-o-Y, to 8.6%, primarily led by COGS inflation (216bps). Also,
increased share of lower margin food business in overall sales hit margins (as
pointed in our visit note dated January 06, 2011). This was partially offset by
lower employee cost (19bps) and other expenses (50bps).
E-Zone to be hived off; in spite of seven stores opened in H1FY11
PRIL experienced lower margin realisation, higher competition, reduced
bargaining power in the electronic category. Hence, it plans to hive off this
business and intends to transform it into digital commerce rather than physical
trade, which could reduce the inventory. Debt of INR 1,500 mn and inventory of
INR 1,400 mn, which will shift to this new entity, will be positive for PRIL’s
balance sheet. In spite of seven new stores opened in H1FY11, a sudden change
in the company’s strategy to hive off E-Zone, looks surprising to us.
Expansion plans on track; 0.8 mn sq ft added in Q2FY11
PRIL added 0.8 mn sq ft retail space in Q2FY11, taking total space to 14.17 mn
sq ft, testimony to the company’s improved expansion against Q1FY11 (gross
addition of 0.4 mn sq ft). The company added 5 pantaloon stores, 2 Central, 7
Big Bazaar, 8 Food Bazaar and 36 KB’s fair price during Q2FY11. It also shut
down 2 Food Bazaar and 1 Brand Factory due to their poor performance.
Outlook and valuations: Positive; maintain ‘BUY’
Given PRIL’s focus on calibrated profitable growth, robust expansion plans and
sharp correction in stock price, we are bullish on the company. Although we are
positive, the burgeoning debt and slow restructuring remain key concerns. The
stock has corrected significantly and offers good entry point at present, in our
view. We maintain ‘BUY/ Sector Performer’ on the stock.
Gradual restructuring underway; E-Zone to be hived off
PRIL has completed the listing of Future Mall Management and has merged Home
Solutions Retail India (HSRIL) into itself. The company is also planning to hive off Future
Capital by September 2011 and E-Zone by July 2011. However, demerger of the
insurance arm is contingent on approval of Insurance Regulatory and Development
Authority (IRDA).
Expansion plans on track; 0.8 mn sq ft added in Q2FY11
PRIL added 0.8 mn sq ft retail space during Q2FY11, taking the total space to 14.17 mn
sq ft, testimony to the company’s improved expansion against Q1FY11 (gross addition of
0.4 mn sq ft). The company added 5 pantaloon stores, 2 Central, 7 Big Bazaar, 8 Food
Bazaar and 36 KB’s fair price during Q2FY11. It also shut down 2 Food Bazaar and 1
Brand Factory due to their poor performance.
Robust EBITDA growth; EBITDA margins down, led by higher COGS
EBIDTA grew a robust 12.1% Y-o-Y, to INR 2.3 bn; however, EBITDA margins dipped
147bps Y-o-Y, to 8.6%, primarily led by COGS inflation (216bps). Also, increased share
of lower margin food business in overall sales hit margins (as pointed in the visit note
dated January 06, 2011). This was partially offset by lower employee cost (19bps) and
other expenses (50bps).
Pantaloon Retail: Q2FY11 (June ending): Key takeaways from concall
• Confident of consumer demand: Sales growth is likely to remain buoyant in the
coming quarters with December quarter having the positive impact of a delayed onset
of Diwali. PRIL remains bullish on the India consumption story. In high inflation
scenario, the company expects modern retail to do well over the medium-to-long
term. January 2011 has been quite good, with the company recording best ever sales
(INR 12 bn). The company again stressed on profitable growth.
• E-Zone
The company is planning change in strategy in this format as margins here are
extremely thin and there is requirement for high inventory
Competitive intensity has increased sharply (in our view from Croma of Tata
group) and Pantaloon is not the leader
Bargaining power for PRIL is extremely low (as top three consumer durable
brands contribute 55% to revenues)
Also, the company did not see significant growth in this format in December and
January. Saw ~20% Y-o-Y growth in Q2FY11
Negative EBITDA margin of 6% at store level and EBITDA loss of INR 120 mn
The company plans to bring a partner in this format and will divest stake
(partner will infuse funds) and transform it into digital commerce rather than
physical trade. This would ensure reduced inventory
The company will shut down ~9 stores out of the present 51 stores
It plans to expand smaller format size of 1500-2000 sq ft stores, which will
become the flagship stores and will be used for showcasing key SKUs and for
delivery and bill collection
Will be hived off by July 01, 2011.
Debt of INR 1,500 mn, inventory of INR 1,400 mn will get shifted to this hived
off entity.
Mobile handset sales have slowed down.
• KB’s Fair Price
Focused only in two cities viz. Mumbai and Delhi. Bangalore has 28 stores and
not planning to expand further
Has one of the highest per sq feet sales in the industry
Only 350 SKUs
Does not sell perishable goods like milk, eggs, butter etc
Success will largely depend on private labels.
Food Park in Bangalore will be a key help as most of the vendors will be based
here leading to saving on logistics.
• Hometown: The management expects Hometown to be next growth driver and
contribute 10,000 mn to topline in FY12. The business is gaining traction in
readymade kitchens. This business is in steady state, and if current growth trends
continue, will have one of the highest ROCE. The new management of Hometown,
headed by expat Mark, has done quite well and is looking promising. The company is
upbeat, since it does not expect competition for the next three years.
• Expansion: As per the management, new space added in H1FY11 is 1.2 mn sq ft
(0.40 mn sq ft in Q1FY11 and 0.80 mn sq ft in Q2FY11). It plans to add ~1.5 mn sq
feet in H2FY11 and is confident of adding 2.5-3 mn sq ft in FY12. Also, the company
will add 8-9 stores in the Pantaloon format and ~30 in Big Bazaar on an annual basis.
The company will not expand Home Town and Food Bazaar.
• Raw material cost inflation: Company is seeing huge cost inflation in many key
raw materials like Cotton (up by 30-40% YoY); and also plastics, polymers have gone
up. Also, China, which is a key supplier, has cut down on manufacturing in some raw
materials.
• Debt: Net debt INR 34,000 mn (December 2010, gross debt INR 35,000 mn) vis-avis
INR 32,000 mn (December 2009).
• Interest cost
Credit rating upgraded to ‘A’.
75% of debt at fixed rate, with average maturity of 3.5-3.6 yrs, taking the
blended interest rate to 10.8%.
• Inventory: The current level of inventory is 98 days. The company maintained
inventory at such high level, in anticipation of increased sales in republic day sales
season, high capacity expansion and World Cup related merchandise (INR 500 mn).
However, as per the management, the inventory level will be brought down to 90
days in June 2011.
• Loans and advances: High Loans and advances can be attributed to expansion in
retail, as 6-9 months deposit needs to be paid while booking the property.
• Working capital: Targets to reduce it by INR 3,000 mn by June 2011. This, the
company feels is achievable, but with 3-6 months delay viz. by December 2011.
• Capex: The company has spent significantly in H1FY11, amounting to INR 4,500 mn.
The company further plans to spend INR 3000 mn in H2FY11.
• Debt/Equity: For core retail 1.06.
• E-Commerce: INR 6,500 mn to be incrementally invested in E-Commerce. However,
funds would be brought in by other investors.
• Future venture: Cash inflow to future venture is INR 1,500 mn every year. The
company plans to monetise it, going ahead, as it believes future venture has made
strategically significant investment.
• Insurance: Insurance business requires 500 mn every quarter.
• Logistics business: The company will get second round of funding in logistics
business by March.
• GST: The company is prepared for GST, which will be extremely positive for it. Post
GST implementation, the company will need to have only 20 warehouses from
current 67.
Home solutions business
HomeTown, the home solutions arm of Pantaloon Retail, is looking at break-even in FY11
(June ending) and a sales of INR 10 bn by FY 12. HomeTown is a first-of-its-kind home
improvement retail format in India that provides one-stop home-making solutions. Also
company was contemplating opening newer formats in the mid-segment for Tier II and
III cities. It is looking at smaller formats and the plan is to open about 50 such stores in
the next 2-3 years. These will be much smaller in size at 20,000 sq ft per store. These
stores would be named either HomeTown Zip or HomeTown Local.
Future Supply Chain
Future Supply Chain, subsidiary of Pantaloon Retail (Pantaloon holding 94.8% stake) has
signed up ~350 customers. Future Supply Chain Solutions caters to ITC, HUL and this
has helped it to raise its share of non-Future Group revenues by 10% to 30%. This will
move up to 50 per cent by June 2011. Future Supply Chain focuses on solutions for four
main consumer sectors — fashion, food, home and general merchandise — for which it
has developed 30 supply chain solutions that cater to their own unique needs.
Future’s bargaining power with FMCG suppliers
The company has stopped fresh orders of brands belonging to Reckitt Benckiser, the
maker of popular household brands such as Dettol and Harpic, in response to Reckitt’s
cut in retailers’ margins to 14% from 16% on some of its products to partly offset rising
input costs. Less than 10% of Reckitt’s total revenues come from organised retailers
now, although this figure grew nearly 30% last year. This can prove to be positive for
private brands of Future group, however it needs to be watched if Pantaloon is able to
maintain margins.
Key management profile- Professional management
According to the company, promoters on board provide strategic vision and all key
functions are now being run by professionals with relevant experience. Below is a brief
profile of key management hires.
Mr. Kishore Biyani, Group CEO, Future Group
• Over 25 years of experience and has led the group’s transformation from a apparel
distributor to a multi-format retail chain.
• Recipient of several awards in the field of retail and entrepreneurship.
Mr. Shailesh Haribhakti, Chairman of the board, PRIL
• Deputy Managing Partner of Haribhakti & Co., Chartered Accountants, and is the
only Indian member on the Standards Advisory Council of the IASB.
• He is also serving on the board of several reputed public companies.
Mr. Kailash Bhatia, Wholetime Director, PRIL
• Has over three decades of experience in the fashion business and was the cofounder
of the ColorPlus brand.
• He was earlier associated with Weekender, Arvind Mills and Mafatlal Industries.
Mr. Rakesh Biyani, Wholetime Director, PRIL
• Has over two decades of experience in fashion and retail.
• Currently, leads the operations and expansion of the group’s leading formats and is
actively involved in category management, international alliances, stores operations,
and IT.
Mr. Sanjeev Agarwal, Joint CEO, Future Value Retail
• He has over 20 years of experience and prior to joining PRIL, he has worked with
Hindustan Lever, P&G, Godrej Soaps and Balsara Home Products. He completed his
engineering from Institute of Technology, Banaras Hindu University and holds a
postgraduate diploma in management in marketing and finance from IIM (L). He
joined PRIL in April 2003 and was President, Marketing, and more recently, CEO,
Pantaloons.
Mr. Sadashiv Nayak, Joint CEO, Future Value Retail
• Mr. Nayak has over 14 years of experience and has previously worked with
Hindustan Lever and Asian Paints. He holds a bachelor’s degree in engineering from
KREC, Surathkal, and an MBA in Marketing from XLRI, Jamshedpur. He is
responsible for the P/L and operations of South and East zones and managing and
growing independent Food Bazaar stores. He joined PRIL in July 2004 and was the
Zonal Head, West Zone and CEO, Big Bazaar.
Mr. Vishnu Prasad, CEO, Central & Brand Factory
• Mr. Prasad holds a bachelor’s degree in commerce from Nagarjuna University and an
MBA in Marketing from Pune University. He joined the company in March 2001 and
has 26 years of experience. Prior to joining the company he worked with Arvind
Mills.
Mr. C.P. Toshniwal, CFO, PRIL
• He has over 15 years of work experience in various companies. He is a qualified CA
and Company Secretary.
Mr. Anshuman Singh, MD & CEO, FSCS
• Mr. Singh is a mechanical engineer and MBA and has over 17 years professional
experience and has successfully created and led organizations in the field of retail as
well as supply chain and logistics. Prior to his current assignment, he was the
Director and CEO of Welspun Retail. Mr. Singh has earlier worked in various
organizations of repute like Grasim, H&R Johnson and Bombay Dyeing.
Ms. Vibha Rishi: Group Strategy and Consumer Director, Future Group
• Ms. Rishi has nearly 20 years of experience in the field of marketing. She leads all
marketing, communication and customer strategy for the Future Group. She began
her career with Tata Administrative Services and later joined the start-up team of
PepsiCo, India, in 1989. She spent over 17 years with the company in India and
overseas and has served at various senior management roles. She left as Vice
President, Innovation, PepsiCo International, UK. She is an alumnus of the Faculty of
Management Studies, University of Delhi.
Mr. Damodar Mall: Director, Integrated Food Strategy, Future Group
• With over two decades of experience in FMCG and food industry, Mr. Mall was the
co-founder of D’Mart , a supermarket chain in Mumbai, and was associated with
Hindustan Uniliver for over 12 years. He is an alumnus of Indian IIT (Mumbai) and
IIM (Bangalore).
Mr. Santosh Desai: MD & CEO, Future Brands India
• Mr. Desai has over 21 years of experience in advertising. He was the President of
McCann-Erickson, India, prior to his association with the Future Group. He has been
invited as a key note speaker at advertising forums in India and overseas and has
addressed the global management boards of several multinationals including
Hershey’s, Microsoft, Philip’s, Unilever, Coke etc. Mr. Desai is an alumnus of IIM
Ahmedabad.
Mr. Devdutt Pattanaik: Chief Belief Officer, Future Group
• Mr. Pattanaik is a medical doctor by education, a leadership consultant by profession
and a mythologist by passion. He has 14 years experience in the health care
industry with organizations such as Sanofi Aventis and Apollo Healthcare. He has
written and lectured extensively on the nature of sacred stories, symbols and rituals
and their relevance in modern times.
Mr. B Anand: Director Finance, Future Group
• Mr. Anand has nearly 22 years of experience in corporate finance and banking
across diversified business groups. Prior to joining the group, he was President-
Corporate Finance, Vedanta Resources Group. He has been associated with Motorola
India, Credit Lyonnais, HSBC, IL&FS, Citibank etc. Mr. Anand holds a degree in
commerce and is a qualified Chartered Accountant.
Mr. Sanjay Jog: Chief People Officer, Future Group
• Mr. Jog has over 25 years of experience in human resources, having worked with
companies like DHL, Taj Hotels Group, and RPG Enterprise. He holds an MBA in
Human Resources from Pune University.
Mr. Raghu Pillai, CEO, Future Value Retail & Executive Board Member, Future
Group
• Considered to be a stalwart in the retail business, Mr. Pillai is credited to have set up
RPG Group’s retail business as well as till recently Reliance Group’s retail foray. He
joined Future Group in October 2010 and leads the retail divisions of Big Bazaar,
Food Bazaar, KB's Fairprice, Aadhar, Home Town, and eZone.
Company Description
PRIL is a leading Indian retail company with presence across most sectors of organized
retail. The company, entered modern retail in 1997 with the opening of its department
store format Pantaloons. In 2001, PRIL launched Big Bazaar, a hypermarket chain,
followed by Food Bazaar, a supermarket chain. A five format company, two years back,
it now operates over 20 formats which include Central (seamless malls located in city
centers), Collection I (home improvement products), Depot (books, music, gifts and
stationeries), aLL (fashion apparel for plus-size individuals), Shoe Factory (footwear),
and Blue Sky (fashion accessories). It has recently launched its e-tailing venture,
futurebazaar.com. The company, currently, operates over 14.17 mn sq ft of retail space.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and
economic factors. Despite the slowdown expected in real GDP growth in the near term,
the long term prospects backed by changing consumer behaviour in favour of larger
discretionary spend, has set the stage for a healthy growth in the retail space over the
next five years. The big opportunity lies in the growing share of organised retail with the
growing trend among consumers to allocate a larger share of income to consumption and
gradual improvement in lifestyle.
PRIL has established strong presence across multiple consumption categories in a bid to
capture maximum consumer wallet share. It has also successfully incubated allied
businesses derived from the retail business or which support the core retail business in
subsidiaries like Future Media, Future Logistics, Future Bazaar, Future Capital Holding
(FCH), Future Ventures, and Future Knowledge Services. We believe PRIL has the ability
to create significant value with its large scale of operations and proven execution track
record.
Key Risks
Slow revenue growth due to rollout delays and poor same store growth
A large number of retailers are facing delays in roll outs due to delays by developers.
This is a significant risk and can lead to cost overruns. The delays on account of other
retailers could also impact PRIL as malls will not be viable unless all tenants are tied in.
The company’s same store sales as a whole have been falling steadily due to rising
competition. Continued sharp decline in the same in the future will be a risk to the
company’s growth.
Pressure on margins due to competition
With increasing competition, catchment areas are shrinking and the PSFPAs are not
scaling up as expected. Coupled with this, the shortage of quality retail space leading to
spiraling rentals, underdeveloped supply chain, and rising employee costs, which could
add to the cost and impact the company’s margins.
Macro slowdown
Macro concerns could hamper domestic consumption trends and result in lower footfalls.
Rising share of debt
Going forward, the company will have to depend primarily on debt for funding growth.
Steep increase in cost of borrowing can impact the profitability of the company.
No comments:
Post a Comment