pantaloon - edelweiss - may 2011

8/3/2019 Pantaloon - Edelweiss - May 2011

1/15

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Higher other income, lower tax rate boost PAT

In Q3FY11 (March quarter), revenue of Pantaloon Retails (PRIL) core retail

business jumped up 17.6% Y-o-Y to INR 28.12 bn, in line with our estimate of

INR 28.5 bn. Same store sales (SSS) surged 10.3% in value retailing, 10.2% in

lifestyle retailing and 9.1% in home retailing Y-o-Y. PAT soared 34.8% Y-o-Y to

INR 505 mn (in line with our INR 475 mn estimate) on account of rise in other

income and lower tax rate (33% in Q3FY11 versus 43% in Q3FY10). Revenue

momentum tapered off during the quarter (sales increase was 26.4% for

9mFY11) following supply disruption because of strike and World Cup cricket

matches of India on weekends. Comparatively, the trend in Shoppers Stop was

superior as Q4FY11 same store sales grew 14% versus 17% in FY11.

Other expenses nip EBITDA margin; 20 bps expansion Q-o-Q

EBIDTA grew 14.0% Y-o-Y to INR 2.5 bn during the quarter though EBITDAmargin dipped 28bps Y-o-Y to 8.8%, primarily led by an increase in other

expenses (54bps). Despite a sharp increase in raw material prices of apparels in

Q3FY11, margins expanded by 20 bps Q-o-Q. Also, higher share of low-margin

food business in overall sales took a toll on margin (as highlighted in our visit

note, festivals perk up sales; valuations attractive, dated January 06, 2011).

While employee costs were flat Y-o-Y, input costs dipped 33bps Y-o-Y. Interest

cost posted a marginal rise at 8.7% Y-o-Y to INR 1.09 bn.

Expansion plans on track, add 0.68 mn sq ft

PRIL added 0.68 mn sq ft retail space during the quarter, taking total space to

14.85 mn sq ft, in-line with expectations. The company added one Pantaloons

store, one Central store, five Big Bazaar, two Food Bazaar and 28 KBs Fair Price

stores during Q3FY11. Also, one Pantaloons store, one Food Bazaar store and 9

KBs Fair Price stores were shutdown due to poor performance.

Outlook and valuations: Cash counters ringing; maintainBUY

Given PRILs focus on calibrated profitable growth, robust expansion plans and

sharp correction in stock price, we are bullish on the company. Although we are

positive on the long term story, the burgeoning debt and sluggish restructuring

pace remain key concerns. SSS growth has lagged Shoppers Stop in March

quarter and we continue to monitor it in coming quarters. The stock has

corrected significantly and offers good entry point currently, in our view. We

maintain BUY/ Sector Performer recommendation/rating on the stock.

India Equity Research | Retail Result Update

PANTALOON RETAIL

Sales slows down; low interest cost, expansion brighten horizon

May 13, 2011

Reuters: PART.BO Bloomberg: PF IN

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Performer

Risk Rating Relative to Sector Medium

Sector Relative to Market Overweight

Note:Please refer last page of the report for rating explanation

MARKET DATACMP : INR 241

52-week range (INR) : 528 / 218Share in issue (mn) : 201.1

M cap (INR bn/USD mn) : 51 /1,141

Avg. Daily Vol. BSE/NSE (000) : 374.6

SHARE HOLDING PATTERN (%)

Promoters* : 44.9

MFs, FIs & Banks : 16.7

FIIs : 24.1

Others : 14.3

* Promoters pledged shares

(% of share in issue): 11.3

PRICE PERFORMANCE (%)

Stock Nifty EW Retai

Index

1 month (14.7) (5.2) (1.0

3 months (2.8) 3.3 12.7

12 months (39.9) 6.4 4.1

Abneesh Roy

+91 22 6620 3141

[email protected]

Nitin Mathur

+91 22 6620 3073

[email protected]

Harsh Mehta

+91 22 4063 5543

[email protected]

Financials - Core Retail

Year to June Q3FY11 Q3FY10 % change Q2FY11 % change FY10 FY11E

Net revenues (INR mn) 28,119 23,906 17.6 27,586 1.9 89,261 109,107

EBITDA (INR mn) 2,479 2,174 14.0 2,383 4.0 8,191 9,383

Net profit (INR mn) 505 375 34.8 472 7.0 2,431 1,992

Diluted EPS (INR) 2.5 2.0 24.4 2.3 7.0 11.8 9.7

Diluted P/E (x) 20.4 24.9

EV/Sales 1.0 0.9

ROAE (%) 9.0 6.7


2/15

2 Edelweiss Securities Limited

RetailChart 1: Store tally surged to 721 at Q3FY11 end

Chart 2: Addition takes retail space to 14.85 mn sq ft Q3FY11 end

Chart 3: EBITDA margin contracts Y -o-Y

Source: Company, Edelweiss research

0

180

360

540

720

900

Q3FY10 Q2FY11 Q3FY11

(Nos

.)

Pantaloons BB & FB Central & Brand factory

eZone Home Town KB's Fair Price

Others

0

3

6

9

12

15

Q3FY10 Q2FY11 Q3FY11

(mnsqft)

Pantaloons BB & FB Central & Brand factory

eZone Home Town KB's Fair Price

Others

0.0

2.4

4.8

7.2

9.6

12.0

Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

(%)

EBITDA margin


3/15

Edelweiss Securities Limited 3

Pantaloon Retail

EBIDTA margins of various formatsvalue brands (~6-8%), lifestyle brands (~12-13%)

and food format (~7-8%).

Table 1: Sales and margins across formats


Table 2: Gross and EBITDA margins across formats


Chart 4: SSS grow th trend Q3FY 11 SSS taper off


Revenue momentum tapered off during the quarter (sales increase was 26.4% for

9mFY11) following supply disruption because of strike and World cup cricket matches of

India on weekends. Comparatively, the trend in Shoppers Stop was superior as Q4FY11

same store sales grew 14% versus 17% in FY11.

Sales INR/sq feet Gross margins (%)

Big Bazar 8,500 20-25

Food Bazaar 14,000 15-17

Pantaloon 8,500 40-45

Central 8,200 30-35

Home Town 5,000 18-20

E-Zone 10,000 10-15

Big Bazaar + Food Bazaar 70% of sales

Pantaloon 13% of sales

Central 12% of sales

Others 5% of sales

Gross margin (%) EBITDA margin (%)

Fashion 35-40 14-15

Food 15-16 3-4

Home Electronics 10 2-3

Home Furniture 35+ 14

Home Home Fashion 35-40 15

General Merchandise

(Glasses/luggage/sports goods)30 17-18

KB Fairprice 11-12 2

(40.0)

(20.0)

0.0

20.0

40.0

60.0

Q1FY0

9

Q2FY0

9

Q3FY0

9

Q4FY0

9

Q1FY1

0

Q2FY1

0

Q3FY1

0

Q4FY1

0

Q1FY1

1

Q2FY1

1

Q3FY1

1

(%)

Value retailing Lifestyle retailing Home retailing


4/15


RetailChart 5: Shoppers Stop sales grow thOutshines Chart 6: Shoppers StopSSS grow th superior


Government giving finishing touches to retail FDI policy

With elections behind us, the government is believed to be giving final touches to the

proposal of allowing FDI in multibrand retail. The government is expected to convene a

high-powered meeting on the issue with all stakeholders. Post the meeting, the proposal

will be forwarded to the Cabinet. This will be in a calibrated manner so as to avoid large-

scale protest and opposition. The final report, being prepared by the Department of

Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry,

has received the much-needed approval from all the other ministries concerned.

What could be likely riders?

The government is likely to put in a condition for foreign retailers of investing a minimum

of USD 100 mn, of which USD 50 mn will be kept aside to support back-endinfrastructure such as warehouse, cold storage and transportation, among others,

depending on the state governments' decision. Retailers will not be allowed to set up

shops in cities with a population of less than a million. The Ministry of Consumer Affairs

and Public Distribution has suggested a threshold of 49% for FDI. The Micro, Small and

Medium Enterprises Ministry are of the opinion that the government should limit FDI in

multi-brand retail to 18%.

Under the current norms, the government allows 51% FDI in single-brand retail and

100% in wholesale cash-and-carry operations; it is prohibited in multi-brand. Last year,

the government also eliminated the condition that wholesale trading made to group

companies must be utilised for internal use. However, the government has not removed

the clause that such sale of goods internally should not exceed 25% of the total turnover

of the wholesale venture.

In July 2010, the government had floated a discussion paper on opening the multi-brand

retail sector for FDI. Post which, it set up a committee under the Ministry of Consumer

Affairs and Public Distribution, with representatives from ministries of commerce and

industry, finance, agriculture and food processing industries.

0.0

7.0

14.0

21.0

28.0

35.0

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11(

Shopper's

Stop

Salesgrow

th%)

Deparment stores All formats

(5.0)

1.0

7.0

13.0

19.0

25.0

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

(%)

SS deparment stores


5/15


Pantaloon Retail

Other developments during Q3FY11 (June year end)

Jet Airways ties up w ith Future Group

In a bid to attract more customers and provide exclusive offers to current members, Jet

Airways has partnered with Future Group. JetPrivilege members can now earn one JPMile

for purchase of INR 100 and above at each of the EZone stores or online at

futurebazaar.com.

Future Group resolved issues relating to profit margins w ith Reckitt Benkiser

Reckitt Benckiser products had been removed from shelves in Q3FY11 after the company

shot off a mail informing the Future Group that it will slash the retailers margins. The

issue has been resolved in Q3FY11 (June year end).

Clarks sets up first India store in JV w ith Future Group

Clarks Future Footwear, a 50:50 joint venture between PRIL and UK-based footwear

company Clarks, opened its first exclusive retail store in New Delhi in Q3FY11. The joint

venture, which will import 70% of the stock from its UK facilities, is targeting sale of 1

mn pair of shoes in the first two-three years of operations in India. The balance stock will

be sourced from third-party suppliers based in Chennai to be retailed across the country.

Hero Cycles announces strategic tie-up with PRIL

The worlds largest bicycle manufacturer Hero Cycles announced a strategic tie up with

PRILs sports division. This association will enable Hero Cycles to display its merchandise

and make its new range of premium bicycles available across Planet Sports and its shop-

in-shop formats within Central, Pantaloons, Brand Factory and Sports Warehouse across

all metros and tier I cities.

Using Big Bazaarchannel to drive N ano sales

Tata Motors has tied up with the Future Group to sell the Nano in Big Bazaar outlets. This

is the first time a retail chain is selling a car in the country and market experts believe

the decision to tie up with the countrys largest retailer is a brilliant move which could

help Tata Motors push Nano sales.


6/15


Retail Gradual restructuring underway; E-Zone to be hived off

As per the earlier communicated plans, PRIL is planning to hive off Future Capital by

September 2011 and E-Zone by July 2011. However, demerger of the insurance arm is

contingent on approval of Insurance Regulatory and Development Authority (IRDA). PRIL

has earlier completed the listing of Future Mall Management and has merged Home

Solutions Retail India (HSRIL) into itself.

Fig 1: Organisation structure


Pantaloon Retail India

Core Retail

Lifestyle

Pantaloons

Centrals

E-Zone

Home Town

Brand Factory

Planet Sports

Standalone

Retailing

Value Retailing

Big Bazaar

Food Bazaar

Home Bazaar

Furniture Bazaar

KBs Fair Price

Future Value Retail-A

Wholly owned subsidiarySubsidiaries

Retail and allied services

Home Solutions Retail

(66.86% stake)Only collection iretained

Future Capital Holdings

(54.75% stake)

Future Supply Chains

(94.82% stake)

Future Media

(84.24% stake)

Future Bazaar India(100% stake)

Future E-Commerce

(72% stake)

Future Agrovet

(96.16% stake)

Future Mobile and

Accessories

(100% stake)

Future Generali India Insurance(25.50% stake)

General Insurance

Future Generali India LifeInsurance (25.50% stake)

Life Insurance

Staples Future Office Products(39.56% stake)

Office products and Stationary

Talwalkar Pantaloon Fitness Pvt.

(50% stake)

Future Axicom Telecom

(50% stake)

Apollo Design and ApparelPark (39% stake)

Goldmohur Design and ApparelPark (39% stake)

Joint Venture

Speciality Retail


7/15


Pantaloon Retail

Key management profile

According to the company, promoters on board provide strategic vision and all key

functions are now being run by professionals with relevant experience. Below is a brief

profile of key management hires.

Mr. Kishore Biyani, Group CEO, Future Group

Over 25 years of experience and has led the groups transformation from an apparel

distributor to a multi-format retail chain.

Recipient of several awards in retail and entrepreneurship.

Mr. Shailesh Haribhakti, Board Chairman , PRIL

Deputy Managing Partner of Haribhakti & Co., Chartered Accountants, and is the

only Indian member on the Standards Advisory Council of the IASB.

He also serves on boards of several reputed public companies.

Mr. Kailash Bhatia, Wholetime Director, PRIL

Has over three decades of experience in the fashion business and was the co-

founder of the ColorPlus brand.

He was earlier associated with Weekender, Arvind Mills and Mafatlal Industries.

Mr. Rakesh Biyani, Wholetime Director, PRI L

Has over two decades of experience in fashion and retail.

Currently, leads operations and expansion of the groups leading formats and is

actively involved in category management, international alliances, stores operations,

and IT.

Mr. Sanjeev Agarwal, Joint CEO, Future Value Retail

He has over 20 years of experience and prior to joining PRIL, he has worked with

Hindustan Lever, P&G, Godrej Soaps and Balsara Home Products. He completed his

engineering from Institute of Technology (Banaras Hindu University) and holds a

postgraduate diploma in management in marketing and finance from IIM (L). He

joined PRIL in April 2003 and was President, Marketing, and more recently, CEO,

Pantaloons.

Mr. Sadashiv Nayak, Joint CEO, Future Value Retail

Mr. Nayak has over 14 years of experience and has previously worked with

Hindustan Lever and Asian Paints. He holds a bachelors degree in engineering from

KREC, Surathkal, and an MBA in Marketing from XLRI, Jamshedpur. He is

responsible for the P/L and operations of South and East zones and managing and

growing independent Food Bazaar stores. He joined PRIL in July 2004 and was the

Zonal Head, West Zone and CEO, Big Bazaar.

Mr. Vishnu P rasad, CEO, Centra l &Brand Factor y

Mr. Prasad holds a bachelors degree in commerce from Nagarjuna University and is

an MBA in Marketing from Pune University. He joined the company in March 2001

and has 26 years of experience. Prior to joining the company, he worked with Arvind

Mills.


8/15


RetailMr. C.P. Toshniw al, CFO, PRI L

He has over 15 years of work experience in various companies. He is a qualified CA

and Company Secretary.

Mr. Anshuman Singh, MD & CEO, FSCS

Mr. Singh is a mechanical engineer and MBA and has over 17 years professional

experience and has successfully created and led organizations in the field of retail as

well as supply chain and logistics. Prior to his current assignment, he was the

Director and CEO of Welspun Retail. Mr. Singh has earlier worked in various

organizations of repute like Grasim, H&R Johnson and Bombay Dyeing.

Ms. Vibha Rishi: Group Strategy and Consumer Director, Future Group

Ms. Rishi has nearly 20 years of experience in the field of marketing. She leads all

marketing, communication and customer strategy for the Future Group. She began

her career with Tata Administrative Services and later joined the start-up team of

PepsiCo, India, in 1989. She spent over 17 years with the company in India and

overseas and has served at various senior management roles. She left as Vice

President, Innovation, PepsiCo International, UK. She is an alumnus of the Faculty ofManagement Studies, University of Delhi.

Mr. Damodar Mall: Director, Integrated Food Strategy, Future Group

With over two decades of experience in FMCG and food industry, Mr. Mall was the

co-founder of DMart, a supermarket chain in Mumbai, and was associated with

Hindustan Uniliver for over 12 years. He is an alumnus of Indian IIT (Mumbai) and

IIM (Bangalore).

Mr. Santosh Desai: MD & CEO, Future Brands India

Mr. Desai has over 21 years of experience in advertising. He was the President of

McCann-Erickson, India, prior to his association with the Future Group. He has been

invited as a key note speaker at advertising forums in India and overseas and hasaddressed the global management boards of several multinationals including

Hersheys, Microsoft, Philips, Unilever, Coke etc. Mr. Desai is an alumnus of IIM

Ahmedabad.

Mr. Devdutt Pattanaik: Chief Belief Officer , Future Group

Mr. Pattanaik is a medical doctor by education, a leadership consultant by profession

and a mythologist by passion. He has 14 years experience in the health care

industry with organizations such as Sanofi Aventis and Apollo Healthcare. He has

written and lectured extensively on the nature of sacred stories, symbols and rituals

and their relevance in modern times.

Mr. B Anand: Director Fi nance, Future Group

Mr. Anand has nearly 22 years of experience in corporate finance and banking

across diversified business groups. Prior to joining the group, he was President-

Corporate Finance, Vedanta Resources Group. He has been associated with Motorola

India, Credit Lyonnais, HSBC, IL&FS, Citibank etc. Mr. Anand holds a degree in

commerce and is a qualified Chartered Accountant.


9/15


Pantaloon Retail

* FY10 Nos represent core retail business (PRIL+ FVRL)

Financial snapshot (Core Retail) (INR mn)

Year to June Q3FY11 Q3FY10 % change Q2FY11 % change FY10 FY11E FY12E

Net revenues 28,119 23,906 17.6 27,586 1.9 89,261 109,107 134,188

Raw material costs 20,064 17,137 17.1 19,652 2.1 63,056 77,466 95,139

Employee costs 1,215 1,018 19.4 1,217 (0.1) 3,940 4,910 6,173

Other expense 4,361 3,578 21.9 4,334 0.6 14,074 17,348 21,269

Total operating expenditure 25,641 21,732 18.0 25,202 1.7 81,070 99,724 122,581

EBITDA 2,479 2,174 14.0 2,383 4.0 8,191 9,383 11,607

Depreciation 660 518 27.4 650 1.4 2,123 2,514 2,932

EBIT 1,819 1,656 9.9 1,733 5.0 6,068 6,869 8,675

Other income 34 16 113.3 52 (35.7) 857 239 266

PBIT 1,853 1,671 10.9 1,785 3.8 6,925 7,108 8,941

Interest 1,096 1,008 8.7 1,078 1.7 3,913 4,134 4,652

PBT 757 663 14.2 708 7.0 3,013 2,974 4,289

Tax 252 288 (12.7) 235 7.0 582 981 1,415

Core PAT 505 375 34.8 472 7.0 2,431 1,992 2,874

Extraordinary Items - - - (129) - -

PAT 505 375 34.8 472 7.0 2,302 1,992 2,874

EPS 2.5 2.0 24.4 2.3 7.0 11.8 9.7 13.9

No. of shares ( mn) 206 190 8.3 206 - 206 206 206

Raw material costs. 71.4 71.7 (33) 71.2 70.6 71.0 70.9

Employee costs. 4.3 4.3 6 4.4 4.4 4.5 4.6

Other expenses 15.5 15.0 54 15.7 15.8 15.9 15.9

Total operating expenditure 91.2 90.9 28 91.4 90.8 91.4 91.4

EBITDA 8.8 9.1 (28) 8.6 9.2 8.6 8.7

PBT 2.7 2.8 2.6 3.4 2.7 3.2

Core profit 1.8 1.6 1.7 2.7 1.8 2.1

Tax rate 33.2 43.4 33.2 19.3 33.0 33.0


10/15


Retail Company Description

PRIL is a leading Indian retail company with presence across most sectors of organized

retail. The company, entered modern retail in 1997 with the opening of its department

store format Pantaloons. In 2001, PRIL launched Big Bazaar, a hypermarket chain,

followed by Food Bazaar, a supermarket chain. A five format company, two years back,

it now operates over 20 formats which include Central (seamless malls located in city

centers), Collection I (home improvement products), Depot (books, music, gifts and

stationeries), aLL (fashion apparel for plus-size individuals), Shoe Factory (footwear),

and Blue Sky (fashion accessories). It has recently launched its e-tailing venture,

futurebazaar.com.

Investment Theme

The Indian retail landscape is evolving with interplay of several demographic and

economic factors. Despite the slowdown expected in real GDP growth in the near term,

the long term prospects backed by changing consumer behaviour in favour of larger

discretionary spend, has set the stage for a healthy growth in the retail space over the

next five years. The big opportunity lies in the growing share of organised retail with the

growing trend among consumers to allocate a larger share of income to consumption and

gradual improvement in lifestyle.

PRIL has established strong presence across multiple consumption categories in a bid to

capture maximum consumer wallet share. It has also successfully incubated allied

businesses derived from the retail business or which support the core retail business in

subsidiaries like Future Media, Future Logistics, Future Bazaar, Future Capital Holding

(FCH), Future Ventures, and Future Knowledge Services. We believe PRIL has the ability

to create significant value with its large scale of operations and proven execution track

record.

Key Risks

Slow revenue growth due to rollout delays and poor same store grow th

A large number of retailers are facing delays in roll outs due to delays by developers.

This is a significant risk and can lead to cost overruns. The delays on account of other

retailers could also impact PRIL as malls will not be viable unless all tenants are tied in.

The companys same store sales as a whole have been falling steadily due to rising

competition. Continued sharp decline in the same in the future will be a risk to the

companys growth.

Pressure on margins due to competition

With increasing competition, catchment areas are shrinking and the PSFPAs are not

scaling up as expected. Coupled with this, the shortage of quality retail space leading to

spiraling rentals, underdeveloped supply chain, and rising employee costs, which could

add to the cost and impact the companys margins.

Macro slowdow n

Macro concerns could hamper domestic consumption trends and result in lower footfalls.

Rising share of debt

Going forward, the company will have to depend primarily on debt for funding growth.

Steep increase in cost of borrowing can impact the profitability of the company.

.


11/15

Edelweiss Securities Limited

11

Pantaloon Retail

Financial Statements

* Income Statement represents core retail business (PRIL+ FVRL) and Balance Sheet represents consolidated nos.

Income statement (INR mn)

Year to June FY09 FY10* FY11E* FY12E* FY13E*

Net revenues 63,417 89,261 109,107 134,188 164,875

Cost of materials 44,300 63,056 77,466 95,139 116,896

Gross profit 19,118 26,205 31,641 39,049 47,979

Employee costs 2,743 3,940 4,910 6,173 7,584

Advertisement & sales costs 1,142 1,696 2,182 2,617 3,297

Electricity expenses 990 1,562 2,073 2,550 3,133

Rent and lease expenses 5,066 7,141 8,729 10,601 13,025

Others 2,493 3,675 4,364 5,502 6,595

EBITDA 6,684 8,191 9,383 11,607 14,344

Depreciation 1,401 2,123 2,514 2,932 3,422

EBIT 5,283 6,068 6,869 8,675 10,923

Other income 61 857 239 266 275

EBIT incl. other income 5,344 6,925 7,108 8,941 11,198

Net interest & Finance charges 3,182 3,913 4,134 4,652 5,147

PBT 2,162 3,013 2,974 4,289 6,050

Provision for taxation 757 582 981 1,415 1,997

Core PAT 1,405 2,431 1,992 2,874 4,054

Extraordinary items (net of tax) 0 (129) 0 0 0

Profit after tax after Minority Interest & Associate 1,405 2,302 1,992 2,874 4,054

Equity shares outstanding (mn) 190 206 206 206 206

EPS (INR) basic 7.4 11.8 9.7 13.9 19.7

Diluted shares (mn) 190 206 206 206 206

EPS (INR) fully diluted 7.4 11.8 9.7 13.9 19.7

CEPS (INR) 10.8 19.3 17.1 21.3 26.6

DPS 1 1 1 2 3

Dividend payout ratio (%) 11.1 12.8 13.0 13.0 13.0

Common size metrics (% )


Cost of materials 69.9 70.6 71.0 70.9 70.9

Employee costs 4.3 4.4 4.5 4.6 4.6

Advertising & sales costs 1.8 1.9 2.0 2.0 2.0

Electricity expenses 1.6 1.8 1.9 1.9 1.9

Rent and lease expenses 8.0 8.0 8.0 7.9 7.9

Other general expenditure 3.9 4.1 4.0 4.1 4.0

Depreciation 2.2 2.4 2.3 2.2 2.1

Net interest expenditure 5.0 4.4 3.8 3.5 3.1

EBITDA margin 10.5 9.2 8.6 8.7 8.7

EBIT margin 8.3 6.8 6.3 6.5 6.6Net profit margin 2.2 2.7 1.8 2.1 2.5

Growth metrics (% )


Revenues 25.6 40.8 22.2 23.0 22.9

EBITDA 45.1 22.6 14.6 23.7 23.6

PBT 10.5 39.4 (1.3) 44.2 41.1

Net profit 11.5 73.0 (18.0) 44.2 41.1

EPS (6.6) 59.7 (18.0) 44.2 41.1


12/15


Retail


Balance sheet (INR mn)

As on 30th June FY09 FY10* FY11E* FY12E* FY13E*

Share capital 1,076 1,108 1,108 1,108 1,108

Reserves 23,947 27,656 29,390 31,890 35,417

Shareholders' funds 25,023 28,764 30,497 32,997 36,524

Minority 3,846 3,183 3,183 3,183 3,183

Secured loans 32,860 32,571 20,934 22,059 22,959

Unsecured loans 5,723 10,949 25,586 26,961 28,061

Borrowings 38,583 43,520 46,520 49,020 51,020

Deferred tax liability 40 1,102 1,102 1,102 1,102

Sources of funds 67,491 76,569 81,302 86,302 91,829

Gross block 25,945 30,868 36,179 42,021 48,021

Less depreciation 3,936 4,400 6,914 9,847 13,268

Net fixed assets 22,009 26,468 29,265 32,174 34,753

Capital work in progress 4,297 3,044 3,044 3,044 3,044

Investments 8,978 9,098 9,098 9,098 9,098

Current assets 46,231 58,467 61,160 67,975 76,707

Inventories 21,913 24,912 28,588 35,123 43,109

Sundry debtors 3,066 3,914 4,236 5,173 6,311

Cash and bank balance 2,025 2,865 1,560 902 510

Other current asset 122 157 157 157 157

Loans and advances 19,106 26,620 26,620 26,620 26,620

Current liabilities 14,049 20,508 21,264 25,988 31,772

Liabilities 13,519 19,706 20,463 25,186 30,971

Provisions 530 802 802 802 802

Working capital 32,182 37,959 39,896 41,987 44,935

Misc expenditure 25 0 0 0 0

Uses of funds 67,491 76,569 81,302 86,302 91,829

BV (INR) 131 140 148 160 177

Free cash flow (INR mn)Year to June FY09 FY10* FY11E* FY12E* FY13E*

Net profit 1,405 2,302 1,992 2,874 4,054

Add: Non cash charge 4,583 6,165 6,649 7,585 8,569

Depreciation 1,401 2,123 2,514 2,932 3,422

Others 3,182 4,042 4,134 4,652 5,147

Gross cash flow 5,988 8,467 8,641 10,458 12,622

Less:Changes in WC (2,405) 2,339 (3,241) (2,748) (3,341)

Cash from operations 3,583 10,806 5,400 7,710 9,282

Less: Capex 7,135 4,923 5,311 5,842 6,000

Free cash flow (3,552) 5,883 89 1,868 3,282

Cash flow metricYear to June FY09 FY10* FY11E* FY12E* FY13E*

Operating cash flow (1,726) 2,512 5,400 7,710 9,282

Financing cash flow 9,630 2,806 (1,393) (2,526) (3,674)

Investing cash flow (9,532) (4,479) (5,311) (5,842) (6,000)

Change in cash (1,628) 839 (1,305) (658) (392)

Capex (7,135) (4,923) (5,311) (5,842) (6,000)

Dividends paid (156) (296) (259) (374) (527)


13/15


13

Pantaloon Retail


Ratios


ROAE (%) 5.9 9.0 6.7 9.1 11.7

ROACE (%) 10.0 9.6 9.8 11.6 13.7

Debtor days 17 14 14 14 14

Inventory days 114 96 96 96 95

Payable days 81 75 75 75 75

Cash conversion cycle (days) 51 35 35 35 34

Current ratio 3.3 2.9 2.9 2.6 2.4

Debt/EBITDA 5.8 5.3 5.0 4.2 3.6

Debt/Equity 1.5 1.5 1.5 1.5 1.4

Adjusted debt/equity 1.5 1.5 1.5 1.5 1.4

Interest coverage (x) 1.7 1.6 1.7 1.9 2.1

Operating ratios

Year to March FY09 FY10* FY11E* FY12E* FY13E*

Total asset turnover 1.0 1.2 1.4 1.6 1.9

Fixed asset turnover 3.3 3.7 3.9 4.4 4.9

Equity turnover 2.7 3.3 3.7 4.2 4.7

Du pont analysis

Year to March FY09 FY10* FY11E* FY12E* FY13E*

NP margin (%) 2.2 2.7 1.8 2.1 2.5

Total assets turnover 1.0 1.2 1.4 1.6 1.9

Leverage multiplier 2.6 2.7 2.7 2.6 2.6

ROAE (%) 5.9 9.0 6.7 9.1 11.7

Valuation parameters


Diluted EPS (INR) 7.4 11.8 9.7 13.9 19.7

Y-o-Y growth (%) (6.6) 59.7 (18.0) 44.2 41.1CEPS (INR) 10.8 19.3 17.1 21.3 26.6

Diluted P/E (x) 32.6 20.4 24.9 17.3 12.3

Price/BV (x) 1.8 1.7 1.6 1.5 1.4

EV/Sales (x) 1.3 1.0 0.9 0.7 0.6

EV/EBITDA (x) 12.3 11.0 10.1 8.4 7.0

Dividend yield (%) 0.3 0.6 0.5 0.8 1.1


14/15


Retail

Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Pantaloon Retail BUY SP M Shoppers Stop BUY SP M

Titan Industries BUY SO L

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings CriteriaSector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe

within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


15/15


Pantaloon Retail

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.Board: (91-22) 4009 4400, Email: [email protected]

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Head Research [email protected] +91 22 6623 3411

Cove r age g r oup ( s ) o f s t ocks by p r im a r y ana lys t ( s ) : Reta i l

Pantaloon Retail, Shoppers Stop, S Kumars Nationwide, Titan Industries

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 118 51 17 189* 3 stocks under review

Market Cap (INR) 111 61 17

> 50bn Between 10bn and 50 bn < 10bn

Date Company Title Price (INR) Recos

Buy Hold Reduce Total

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Access the entire repository of Edelweiss Research on w ww .edelresearch.com

Recent Research

03-May-11 ShoppersStop

In hyper mode;Result Update

345 Buy

02-May-11 TitanIndustries

One offs impact results;long-term story intact;

Result Update

3,916 Buy

29-Apr-11 TitanIndustries

Flagship store in Mumbaianother feather in cap;EdelFlash

98 Buy

Pantaloon Retail EW Indices

400

700

1,000

1,300

1,600

12-May-10 12-Nov-10 12-May-11

Pantaloon Reta il (India) Ltd.EW Miscellaneous IndexNifty

Buy

BuyBuy

200

300

400

500

600

May-1

0

Jun-1

0

Jul-10

Aug-1

0

Sep-1

0

Oc

t-10

Nov-1

0

Dec-1

0

Jan-1

1

Fe

b-1

1

Mar-

11

Apr-

11

May-1

1

(INR)

EW Retail Index

pantaloon - edelweiss - may 2011

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