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Key Takeaways
PF expects ~30% sales CAGR over FY11-13 led by 14-15% SSS growth, space
addition
Pantaloon Retail (PF) expects to deliver ~30% growth over the next two years led
by 14-15% same-store-sales growth and by space addition. However FY12 growth
may be lower than 30%.
Lack of quality real estate will be a key issue in future, which PF plans to address by
aggressively expanding. It plans to add 2-2.5msf of space a year over the next 3-4
years.
Demand environment improves marginally MoM; 2HFY12 to be better than
1HFY12
After a 16-17% price increase in apparel taken in April, consumer demand has
been weak in April and May. However there was marginal improvement in June and
July and the management expects demand to be back on track in 2HFY12.
GST is likely to be a major boost for organized retail with likely saving of 20% on
supply chain cost, if implemented in the true spirit.
PF to cut inventory by 6-7 days; Monetizing non-core retail assets, FDI in
retail to help cut debt
Inventory reduction targets were not met in FY11 because of high cost apparel
inventory. The management aims to cut inventory to 100 days in FY12 and by 6-7
days a year thereafter. The target is 65 days.
PF had debt of ~INR40b at the end of FY11 in the core retail business, ~55% of
which was towards the value retail business. Current debt equity is 1.1x. PF plans to
cut this to 0.75x by monetizing its financial services business (possibly Future Capital)
and benefiting from an impending FDI in retail legislation.
The management however stated that the book value of non-core investments was
USD800m-1b some of which will be monetized within the next 12 months.
Capex of INR8b for space addition, store refurbishment
Space addition of 2-2.5msf and refurbishments of 8-9 year old stores will require
capex of INR8b in FY12, 60% of which will be funded through internal accrual.
Investment in the financial services business continues to be a drag. INR2b outflow
will be required to fund the businesses from PF's balance sheet.
Valuation and view
We believe PF is the best play on retail in India with a strong reach across formats
and will be the biggest beneficiary of FDI in retail in India. However, surging debt,
high inventory and continued investment in financial services are key concerns.
We estimate 35% EPS CAGR over FY11-FY13. The stock trades at 22.8xFY12E EPS
of INR12.4 and 17.6xFY12E EPS of INR16.1x. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
PF expects ~30% sales CAGR over FY11-13 led by 14-15% SSS growth, space
addition
Pantaloon Retail (PF) expects to deliver ~30% growth over the next two years led
by 14-15% same-store-sales growth and by space addition. However FY12 growth
may be lower than 30%.
Lack of quality real estate will be a key issue in future, which PF plans to address by
aggressively expanding. It plans to add 2-2.5msf of space a year over the next 3-4
years.
Demand environment improves marginally MoM; 2HFY12 to be better than
1HFY12
After a 16-17% price increase in apparel taken in April, consumer demand has
been weak in April and May. However there was marginal improvement in June and
July and the management expects demand to be back on track in 2HFY12.
GST is likely to be a major boost for organized retail with likely saving of 20% on
supply chain cost, if implemented in the true spirit.
PF to cut inventory by 6-7 days; Monetizing non-core retail assets, FDI in
retail to help cut debt
Inventory reduction targets were not met in FY11 because of high cost apparel
inventory. The management aims to cut inventory to 100 days in FY12 and by 6-7
days a year thereafter. The target is 65 days.
PF had debt of ~INR40b at the end of FY11 in the core retail business, ~55% of
which was towards the value retail business. Current debt equity is 1.1x. PF plans to
cut this to 0.75x by monetizing its financial services business (possibly Future Capital)
and benefiting from an impending FDI in retail legislation.
The management however stated that the book value of non-core investments was
USD800m-1b some of which will be monetized within the next 12 months.
Capex of INR8b for space addition, store refurbishment
Space addition of 2-2.5msf and refurbishments of 8-9 year old stores will require
capex of INR8b in FY12, 60% of which will be funded through internal accrual.
Investment in the financial services business continues to be a drag. INR2b outflow
will be required to fund the businesses from PF's balance sheet.
Valuation and view
We believe PF is the best play on retail in India with a strong reach across formats
and will be the biggest beneficiary of FDI in retail in India. However, surging debt,
high inventory and continued investment in financial services are key concerns.
We estimate 35% EPS CAGR over FY11-FY13. The stock trades at 22.8xFY12E EPS
of INR12.4 and 17.6xFY12E EPS of INR16.1x. Maintain Buy.
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