Pantaloon Retail Ltd (updated - 26 Feb 2010)
As part of plans to consolidate its retail operations, Pantaloon Retail (PRIL) on Wednesday approved the merger of consumer durables, home furnishings, home improvement and furnishings businesses of Home Solutions Retail (HSR), its 66.86 per cent subsidiary, with itself, and acquisition of the sports retail business of its wholly-owned subsidiary, Winner Sports.
However, the move didn’t go down well with the markets, which saw the deal as expensive and earnings dilutive in the near term.
This follows an alignment of the value retail format into awholly-owned subsidiary. PRIL had also transferred three businesses, including Future brands, to promoters for Rs 190 crore.
Considering that HSR shareholders will be issued 5.9 million shares of PRIL and 6.3 million compulsorily convertible preference shares, the deal values HSR at about Rs 1,500 crore (market capitalisation to sales ratio of 1.4 times, based on 2008-09 numbers), which is higher than PRIL’s own valuation of about 1.15 times, according to analysts.
Second, HSR generated Rs 1,071 crore revenue in 200809, with a pre-tax loss of about Rs 57 crore. While same-store sales grew 1 per cent in the December 2009 quarter and HSR expected to achieve operational breakeven this year (ending June 2010), on about 20 per cent sales growth, breakeven at the profit after tax level is likely only in 201011. Hence, the deal is seen as EPS dilutive (about 6 per cent impact in 2010-11, according to analysts). However, the accumulated losses of HSR will offset the capital gains tax payable by PRIL due to the sale of businesses to promoters, according to IDFC-SSKI Research.
Overall, while the EPS impact may put some pressure on the stock in the near term, the long-term outlook is bright.
The realignment will allow cash accruals to be deployed in the promising retail business. The balance sheet, therefore, will be healthier, even as proceeds from the qualified institutional placement and sales to promoters in the previous quarter should help lower debt and interest costs. Improving financials and balance sheet, along with the potential to unlock value (once the insurance business is demerged), will merit a re-rating for the stock, say analysts.
Meanwhile, Pantaloon Retail saw net sales grow 25 per cent in the December quarter. The lifestyle segment sales rose 25 per cent, as samestore sales clocked 11 per cent growth, outstripping numbers for value retail (with sales growth of 14 per cent and same-store sales growth of 7 per cent). PRIL’s operating profit jumped 29 per cent as margins improved by 33 basis points to 10.74 per cent with better inventory management and cost rationalisation.
Pantaloon’s stock slipped 1.75 per cent to close at Rs 382.50 on Thursday, as against Sensex’s 0.2 per cent decline. It currently trades at 21.85 times estimated 201011 earnings.
source - BS
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Pantaloon Retail Ltd (updated - 01 Sept 2010)
An improving economic scenario, rising discretionary consumer spending and the management focus on rationalisation of business helped Pantaloon Retail India (PRIL) report 40.7 per cent growth in revenues at `8,926 crore for FY10. The uptick in revenues was led by 14 per cent growth in samestore sales, as against six per cent in FY09.
The home retail business, which was languishing with a11 per cent fall in revenues the previous year, saw 12 per cent growth in FY10. The value retail business maintained asteady 9.5 per cent growth. However, the revenue boom did not translate into better profits, as rising costs, especially employee costs (up around 43 per cent), strained operating profit growth at 22.4 per cent. Earnings before interest, tax, depreciation and amortisation margins fell 136 basis points to around nine per cent.
There are concerns at the net level, too. If the profit on sale of investments of `75 crore was to be excluded, net profit inched up just 10 per cent to `155 crore. This is despite alower tax and interest outflow, as debt came down from `3,200 crore to `2,910 crore. In an attempt to present itself as a focused retail player, PRIL merged its subsidiary, Home Solutions Retail, with itself and created a whollyowned subsidiary, Future Value Retail, in January 2010. The results have been impressive on the retail revenue front. However, analysts reckon that management still needs to streamline costs, especially interest costs, to aid profitability. The consolidated debt levels are at 1.3 times, lower than the 1.5 times in FY09, but there is scope for improvement, reckon analysts.
Citi Investment Research and Analysis ascribe a 30 per cent premium against its regional peers, as the company has shown better ability to weather the downturn in the industry and depict revenue visibility.
source - Business Standard
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