Pantaloon- Revenue in line aided by robust same store sales: Edelweiss

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Pantaloon (PF IN, INR 436, BUY)
􀂄 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). Y-o-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 margins 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. 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’.