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Pantaloon: Scaling new heights

Oct 22, 2008

Performance summary
  • Topline grows by 39% YoY in 1QFY09 backed by new store momentum.

  • Slower growth in costs translates into 1.4% expansion in EBITDA margins.

  • Despite higher other income and strong growth in operating profits, net profits report lukewarm growth of 22% YoY. The same is the result of higher depreciation charges and interest costs.

Financial performance snapshot

(Rs m) 1QFY08 1QFY09 Change
Net sales 10,864 15,112 39.1%
Expenditure 9,908 13,563 36.9%
Operating profit (EBDITA) 956 1,549 62.0%
EBDITA margin (%) 8.8% 10.2%  
Other income 7 12 58.9%
Interest 352 684 94.5%
Depreciation & amortisation 153 319 109.0%
Profit before tax 459 557 21.4%
Tax 162 196 20.6%
Profit after tax 297 362 21.9%
Net profit margin (%) 2.7% 2.4%  
No. of shares (m) 151 159  
Diluted earnings per share (Rs)*   8.3  
P/E (x)   27.1  
* trailing 12-months

What has driven performance in 1QFY09?
  • During the quarter, Pantaloon opened 18 stores expanding its retail space from 7.9 m sq ft to 8.6 m sq ft. The new store momentum continues to aid the topline growth of the company. The 39% YoY growth in revenues has been backed by 39% YoY growth in value retailing and 37% YoY growth in lifestyle retailing. The company has been able to report around 10% YoY growth in same store sales. The company has been able to sustain topline growth even in inflationary times as a result of increase in retail space and increased penetration. Moreover, its initiatives of venturing into new segments and exploring opportunities in the value segment have further aided the growth. Given the economic slowdown, lifestyle retailing is the first one likely to take a hit, as discretionary spending drives the segmental growth.

    Cost break-up

    ( % of net sales) 1QFY08 1QFY09
    Consumption of raw materials 68.5% 70.2%
    Staff cost 5.9% 4.6%
    Other expenditure 16.8% 15.0%

  • The ambitious expansion plans has not deterred the company’s growth profitability. In fact, even in these uncertain times the company has been able to report 62% YoY growth in operating profits. The same highlights the fact that economies of scale have kicked in and the company’s first mover advantage has enabled it develop a loyal customer base. Apart from the economies of scale, the cost control measures also seem to driven the 1.4% expansion in EBITDA margins. Except for raw material costs, the company was able to lower other costs (as a percentage of sales).

  • The robust growth in operating profits has not been reflected in net profits. The company’s ambitious expansion plans has bloated its depreciation charges and interest costs. The same exerted pressure on the bottomline that reported a 22% YoY growth in 1QFY09. Had not the other income grown by 59% YoY during the period under consideration, the bottomline growth would have been all the more lower.

What to expect?
At the current price of Rs 225, the stock is trading at a price to earnings multiple of 27.1 times its trailing twelve months earnings. The company’s aggressive plans will continue to give fillip to its topline and help achieve economies of scale over a long-term period. In a move to control costs, the company has taken the decision to hive off different business divisions and operate them separately. Moreover, the company is exploring new formats and new ventures to tap the consumption basket.

While on schedule, the expansion plans will enable the company to maximise revenues. However, intensifying competition and higher corporate costs (the latter due to its capex plans) is expected to pressurise margins.

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