PANTALOON RETAIL Taking a breather;: Edelweiss

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PANTALOON RETAIL
Taking a breather


�� Revenue in line aided by robust same store sales
Pantaloon Retail’s (PRIL) core retail business revenues jumped 32.1% Y-o-Y to
INR 25.8 bn (our expectation INR 25.8 bn) in Q1FY11 (June ending quarter). Yo-
Y, same store sales (SSS) rose 12.5% in value retailing, 22.1% in life style
retailing, and 15.1% in home retailing. Delayed onset of Diwali adversely
impacted the company’s revenue during the quarter. However, PRIL expects to
attract more customers due to the ensuing festive season in Q2FY11. PAT
catapulted 62.4% to INR 428 mn, below our expectation, following higher tax.


�� Gross margin dips due to seasonality; expected to recover in Q2FY11
As per management, extended sales at discounted rate (due to delayed onset of
festive season) resulted in subdued gross margins. Also, the share of lower
margin food business increased in overall sales, which further impacted margins.
As a result, PRIL’s EBITDA margin dipped 120bps to 8.2% in Q1FY11. Shoppers
Stop’s margin declined 140bps in the current quarter, another testimony of the
fact that the seasonality impact was felt across sector. Management expects it to
recover in the next two quarters with FY11 margin likely to be more or less same
as in FY10.

�� Expansion slows down in Q1FY11
PRIL added 0.12 mn sq ft retail space during Q1FY11, which is below
expectation. The core retail business added new Big Bazaar stores at Amravati,
Faridabad, Bhatinda and Vapi; Central destination malls in Vishakhapatnam and
Jaipur; and a Pantaloons Fresh Fashion store in Mumbai. With these additions,
the total operational retail space of the core retail business expanded to 13.37
mn sq ft.

�� Outlook and valuations: Positive; maintain ‘BUY’
Given the recovery in urban consumption and PRIL’s focus on calibrated
profitable growth with robust expansion plans and good execution track record,
we are bullish on the company. According to the management, financial services
demerger will be concluded by June 2011; however, demerger of insurance arm
will take time. Post Q2FY11 results, the stock has corrected a bit due to weak
margin; we believe this is a good entry point. We are bullish on the company’s
prospects and maintain ‘BUY’ recommendation on the stock. On relative return
basis, we rate the stock ‘Sector Outperformer’.