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UBS Investment Research
Pantaloon Retail (India) Ltd.
D ilution on the cards
Event: Pantaloon to raise Rs15bn
Pantaloon Retail’s (PRIL) board has cleared a proposal to raise Rs15bn by issuing
equity-linked securities. The securities to be issued could either be convertible
instruments, debt instruments with attached warrants giving the holder the right to
subscribe for Equity Class B shares, or issue of Class B shares. Class B shares
issued by PRIL have the right to an additional dividend over Class A shares. The
board has agreed on some upper limits: 1) stake dilution of less than 15%; and 2)
debt to equity less than or equal to 1.33x.
Impact: EPS dilution near term if the issue goes through
If PRIL issues shares and uses the entire proceeds to repay its debt, there could be
a potential dilution of ~8-10% in FY12E PAT. The debt to equity ratio for core
retail was 1.12x as at FY11. The discount for high leverage has been built into the
stock.
Action: key catalyst for the stock is non-core divestment
We believe the key catalyst for the stock is divestment of its non-core business,
which we fear could be pushed now given the urgency of capital issuance in a riskoff
market. We believe the stock will likely remain range-bound due to the delay in
divestment of non-core businesses and the announcement of a share dilution.
Valuation: maintain Buy with price target of Rs400
We maintain our Buy rating and price target of Rs400. We derive our price target
from a DCF-based methodology and explicitly forecast long-term valuation drivers
using UBS’s VCAM tool. We assume a WACC of 12%.
Pantaloon Retail (India) Ltd.
Pantaloon is India's largest listed retailer. It is rapidly building retail capacity in
its two main retailing formats: lifestyle and value retailing. In the lifestyle
segment, its Pantaloon stores and the upcoming Central stores offer apparel and
fashion items targeting the middle-income market. Its Big Bazaar discount
stores target the price-conscious apparel and grocery markets (the latter through
the Food Discount brand).
Statement of Risk
The retail sector is closed to foreign competition, but this could change. The
entry of large format foreign retailers with skills in merchandising and supply
chain management could affect the sales and margins of Indian companies such
as Pantaloon.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Pantaloon Retail (India) Ltd.
D ilution on the cards
Event: Pantaloon to raise Rs15bn
Pantaloon Retail’s (PRIL) board has cleared a proposal to raise Rs15bn by issuing
equity-linked securities. The securities to be issued could either be convertible
instruments, debt instruments with attached warrants giving the holder the right to
subscribe for Equity Class B shares, or issue of Class B shares. Class B shares
issued by PRIL have the right to an additional dividend over Class A shares. The
board has agreed on some upper limits: 1) stake dilution of less than 15%; and 2)
debt to equity less than or equal to 1.33x.
Impact: EPS dilution near term if the issue goes through
If PRIL issues shares and uses the entire proceeds to repay its debt, there could be
a potential dilution of ~8-10% in FY12E PAT. The debt to equity ratio for core
retail was 1.12x as at FY11. The discount for high leverage has been built into the
stock.
Action: key catalyst for the stock is non-core divestment
We believe the key catalyst for the stock is divestment of its non-core business,
which we fear could be pushed now given the urgency of capital issuance in a riskoff
market. We believe the stock will likely remain range-bound due to the delay in
divestment of non-core businesses and the announcement of a share dilution.
Valuation: maintain Buy with price target of Rs400
We maintain our Buy rating and price target of Rs400. We derive our price target
from a DCF-based methodology and explicitly forecast long-term valuation drivers
using UBS’s VCAM tool. We assume a WACC of 12%.
Pantaloon Retail (India) Ltd.
Pantaloon is India's largest listed retailer. It is rapidly building retail capacity in
its two main retailing formats: lifestyle and value retailing. In the lifestyle
segment, its Pantaloon stores and the upcoming Central stores offer apparel and
fashion items targeting the middle-income market. Its Big Bazaar discount
stores target the price-conscious apparel and grocery markets (the latter through
the Food Discount brand).
Statement of Risk
The retail sector is closed to foreign competition, but this could change. The
entry of large format foreign retailers with skills in merchandising and supply
chain management could affect the sales and margins of Indian companies such
as Pantaloon.
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