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L e v e r a g i n g w o e s c o n t i n u e …
The board of directors of Pantaloon Retail (PRIL) in its recently held
meeting has authorised the raising of | 1,500 crore through issuance of
either convertible instruments, debt instruments with attached warrants
giving right to the holder of such warrants to subscribe to Equity/Class B
Shares, issue of Equity/Class B shares or any combination thereof. The
board has further directed that the company should ensure that the
overall dilution of equity through the aforesaid is within 15% and the debt
equity ratio is not to exceed 1.33x. As on June 2011, the promoters own
44.9% stake in the company and debt equity ratio stands at 1.37x.
According to our calculations, the company will have to raise equity to
the tune of | 600–650 crore and debt of | 850–900 crore to meet the
above-said criterion. While this is just an enabling resolution and the
management may not raise funds immediately we believe this will be a
negative for PRIL considering the heavily leveraged position of the
company.
ƒ Worries remain: Inventory, debt and lack of funding options
We continue to remain positive about the company’s future
prospects considering the space addition plans. While space
addition of 2–2.5 million sq ft will continue to aid topline growth,
lack of funds will also hinder the same. Factors like delay in opening
up of the sector to foreign direct investment, mounting debt and
inventory levels, the current market scenario (which will make
monetisation of non-core assets difficult) continue to worry us. In
such a scenario, raising funds will become difficult. If sales growth
does not kick in, it could have an impact on the profitability of the
company as interest costs eat into ~40% of the operating profit.
V a l u a t i o n
Bearing in mind these facts and also the recently announced fund raising
plans we have downgraded the target multiple used to value the stock.
We had initially valued PRIL at a 20% discount to Shoppers Stop’s
EV/Sales multiple of 0.8x. We now increase the discount to 25% and
arrive at a revised target price of | 193. Hence, we have downgraded
Pantaloon Retail from BUY to HOLD.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
L e v e r a g i n g w o e s c o n t i n u e …
The board of directors of Pantaloon Retail (PRIL) in its recently held
meeting has authorised the raising of | 1,500 crore through issuance of
either convertible instruments, debt instruments with attached warrants
giving right to the holder of such warrants to subscribe to Equity/Class B
Shares, issue of Equity/Class B shares or any combination thereof. The
board has further directed that the company should ensure that the
overall dilution of equity through the aforesaid is within 15% and the debt
equity ratio is not to exceed 1.33x. As on June 2011, the promoters own
44.9% stake in the company and debt equity ratio stands at 1.37x.
According to our calculations, the company will have to raise equity to
the tune of | 600–650 crore and debt of | 850–900 crore to meet the
above-said criterion. While this is just an enabling resolution and the
management may not raise funds immediately we believe this will be a
negative for PRIL considering the heavily leveraged position of the
company.
ƒ Worries remain: Inventory, debt and lack of funding options
We continue to remain positive about the company’s future
prospects considering the space addition plans. While space
addition of 2–2.5 million sq ft will continue to aid topline growth,
lack of funds will also hinder the same. Factors like delay in opening
up of the sector to foreign direct investment, mounting debt and
inventory levels, the current market scenario (which will make
monetisation of non-core assets difficult) continue to worry us. In
such a scenario, raising funds will become difficult. If sales growth
does not kick in, it could have an impact on the profitability of the
company as interest costs eat into ~40% of the operating profit.
V a l u a t i o n
Bearing in mind these facts and also the recently announced fund raising
plans we have downgraded the target multiple used to value the stock.
We had initially valued PRIL at a 20% discount to Shoppers Stop’s
EV/Sales multiple of 0.8x. We now increase the discount to 25% and
arrive at a revised target price of | 193. Hence, we have downgraded
Pantaloon Retail from BUY to HOLD.
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