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Pantaloon: Slowdown is visible - Views on News from Equitymaster
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Pantaloon: Slowdown is visible
Feb 13, 2009

Performance summary
  • Topline grows by 24% YoY in 2QFY09 backed by new store momentum.
  • Costs grow at a slower pace as compared to the topline resulting in a 1.4% expansion in EBITDA margin.
  • While operating profits report 44% YoY growth, net profits register a dismal 6% YoY growth. Higher depreciation charges and interest costs arrest growth in bottomline.
  • For 1HFY09, Pantaloon Retail reports 31% YoY growth in topline, while bottomline grows by 14% YoY.
  • During the quarter, the company issues 15,929,152 shares as bonus by allotting 1 share for every 10 equity shares held.

Financial performance snapshot

(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 12,268 15,257 24.4% 23,132 30,369 31.3%
Expenditure 11,171 13,684 22.5% 21,080 27,247 29.3%
Operating profit (EBDITA) 1,096 1,573 43.5% 2,052 3,122 52.1%
EBDITA margin (%) 8.9% 10.3%   8.9% 10.3%  
Other income 13 15 15.2% 21 27 30.7%
Interest 418 742 77.5% 769 1,425 85.3%
Depreciation & amortisation 204 325 59.0% 357 644 80.4%
Profit before tax 487 522 7.1% 947 1,080 14.1%
Tax 171 187 9.2% 333 382 14.8%
Profit after tax 317 335 6.0% 613 697 13.7%
Net profit margin (%) 2.6% 2.2%   2.7% 2.3%  
No. of shares (m)       151 159  
Diluted earnings per share (Rs)*         8.4  
P/E (x)         21.5  
* trailing 12-months

What has driven performance in 2QFY09?
  • Pantaloon Retail reported 24%YoY in 2QFY09. The lukewarm performance is attributed to the slowdown in the economic growth. The value retailing business that contributes 60% to the total revenues reported 30% YoY growth in revenues. On the other hand, lifestyle business reported nearly 22% YoY growth.

  • In case of value retailing, same store sales (SSS) reported muted 6% YoY growth during the quarter. The slow growth in same store sales indicates that the company has failed to generate more revenues on the same footage and the growth has come in on account of new store openings, which is not an encouraging sign.

  • Operating profits reported 44% YoY growth during 2QFY09 as costs grew at a slower pace as compared to sales. On a percentage of sales basis, consumption of raw materials increased, while the company was able to curtail other cost heads. Though the exact reason behind the same is not known, it could be on account of piled up inventory. As with reduced footfalls, volumes were on the lower side. This in turn impacted inventory turnover; a phenomenon which has been observed across the industry.

  • Pantaloon had shelved off its plans to de-merge its formats into separate subsidiaries to rationalize costs. Instead, the companys efforts to rationalise costs (by reshuffling work responsibilities) seems to have yielded results as it was able to contain employee costs and other expenses (as a percentage of sales). This is despite sales growth slowing down.

  • While operating margins expanded by 1.4% during 2QFY09, net margins contracted marginally by 0.4%. The robust growth in operating profits did not trickle down to the bottomline (up 6% YoY) on account of higher depreciation and interest costs.

What to expect?
At the current price of Rs 181, the stock is trading at a price to earnings multiple of 21.5 times its trailing twelve months earnings. Pantaloon has outlined aggressive expansion plans. Moreover, the company is exploring new formats and new ventures to tap the consumption basket. These moves are expected to augur well from a long term perspective with the revival in the economic cycle. However, in the short to medium term the growth pace is expected to slow down on account of slowing economy. Retail PNTR, SSTOP, TRENT, TITN

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Feb 21, 2018 11:05 AM


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