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Pantaloon: Streamlines operations for growth

Apr 26, 2010

Pantaloon Retail has announced its 3QFY10 results. The company has reported a 25% YoY and 63% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • With effect from 1st January, 2010 the company has transferred its Value retail business to Future Value Retail Ltd on a going concern basis through slump sale. The move is part of the restructuring plan outlined by the company. Hence, this quarter results are not comparable with the previous year’s corresponding period's performance.
  • For the benefit of the stakeholders, the company has also published numbers including Value retail business. For the sake of analysis of the company’s business, we have taken into account combined results.
  • Revenues grow by nearly 25.3% YoY in 3QFY10. This is led by growth across its segments of operation. Value retailing and life style retailing grows by 31% YoY and 38% YoY respectively.
  • Operating margins remain stable at 10.5% in 3QFY10.
  • On the back of 24.6% YoY growth in operating profits and less than proportionate growth in corporate costs (depreciation, interest and taxes), bottomline reports robust growth of 62.7% YoY.

(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales   16,421   20,576 25.3%   46,790   57,475 22.8%
Expenditure   14,691   18,420 25.4%   41,938   51,383 22.5%
Operating profit (EBDITA)     1,730     2,156 24.6%     4,852     6,092 25.5%
EBDITA margin (%) 10.5% 10.5%   10.4% 10.6%  
Other income           16           14 -10.0%           43           82 91.1%
Interest        847        859 1.3%     2,273     2,562 12.7%
Depreciation & amortisation        369        465 26.0%     1,012     1,349 33.3%
Profit before tax        530        847 59.8%     1,610     2,262 40.5%
Tax        186        288 54.5%        569        758 33.2%
Profit after tax        344        559 62.7%     1,041     1,504 44.5%
Net profit margin (%) 2.1% 2.7%   2.2% 2.6%  
No. of shares (m)       159 190  
Diluted earnings per share (Rs)*         9.8  
P/E (x)         43.1  

What has driven performance in 3QFY10?

  • Pantaloon Retail has reported 25.3% YoY growth in topline backed by growth across segments. The value retailing business, which is transferred to a wholly owned subsidiary as a part of business restructuring plan grew by 31% YoY. On the other hand, lifestyle retailing business grew by 38.4% YoY. The segmental growth numbers puts forth case of rebound in consumption. Also the company’s push strategy seems to have helped it increase sales. During the quarter same store sales growth had also come in double digits. Same store sales in case of value retailing business reported 13.9% YoY growth, while lifestyle retail business reported 13.2% YoY growth.

  • During the quarter, the company had offered special offers and promotions. In the month of January, the Future Group’s biggest shopping festival was arranged. It was called Sabse Sasta 4 Din. It was held across 120 Big Bazaar stores and group formats such as Pantaloons, Central, eZone, Home Town. The 4 days attracted over 10 m people from over 70 cities. The company has also launched its own co-promoted brand of ‘SACH’ toothpaste in the oral category. The product is developed and created along with the iconic cricketer Sachin Tendulkar. The company also entered the large format food led hypermarket business for the first time with the creation of the FOOD RIGHT brand in Mumbai.

  • The company has been able to sustain EBITDA margins at around 10.5%. This is mainly on account of a fall in employee cost and other expenditure as a percentage of sales basis. Otherwise cost of raw materials consumed has increased as a percentage of sales basis. The exact reason for increase or decrease in a particular cost head head is not known.

  • Net profit growth stood at 62.7% YoY. Compared to 24.6% YoY growth in operating profits, bottomline has grown at a much faster rate. This is primarily on account of less than proportionate growth in other cost heads such as depreciation, interest and taxes.

  • The company has planned to cautiously revamping its retail footprint. It is also looking at expanding in Tier II cities, while maintain dominance in bigger cities such as Tier I. This strategy is likely to help the company boost sales of both value as well as lifestyle retail business. The company is also streamlining its operations into three business verticals - retail, financial services, and support activities. As a part of the restructuring plan, it has transferred its Value retail business to Future Value Retail Ltd on a going concern basis through slump sale with effect from 1st January, 2010.

What to expect?
At the current price of Rs 423, the stock is trading at a price to earnings multiple of 43.1 times its trailing twelve months earnings. The company has restructured its business segments. It has also revamped its supply chain initiatives. As the company has achieved scale and plans to focus on maintaining its return on capital, it has decided to vigilantly expand its retail space across India. Hence, it is expanding its retail footprint on a cautious note. These moves along with economic revival are expected to augur well from a long term perspective.

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