Buy Pantaloon Retail (I) Ltd
Pantaloon Retail India Limited (PRIL), a retailer was incorporated in 12th October of the year 1987, headquartered in Mumbai, the company operates through primarily the `Lifestyle' and `Value' formats through multiple delivery mechanisms and lines of business, some of them being, fashion, food, general merchandise, home, leisure and entertainment, financial services, communications and
wellness. The Company has stores in 51 cities across the country, constituting over 6 million square feet of retail space. It caters to the `Lifestyle' segment through its 35 Pantaloons Stores and 5 Central Malls, as well as its other concepts. In `Value' retailing it is present through 78 Big Bazaar hypermarkets, 113 Food Bazaars and other delivery formats.
Key Developments
The Board has on Oct 30,2009 approved the business realignment activities with a focus on-
• Unlocking Shareholder Value in Non-Retail Business
• Consolidating Pantaloon Retail as a Pure Retail Play
• Big Bazaar and Food Bazaar to be a Wholly Owned Subsidiary
Financial Performance
Strong sales growth driven by space addition and improved conversion ratio
PRIL sales in FY09 grew by a healthy 25.6% on the back of improved conversion ratio by 200bps to 43% and increase in footfalls from 16.3 crore to 18.5 crore. Despite the current downturn company added ~15 stores (net) leading to a space addition increase of 22.8% y-o-y to 9.7mn sq.ft. PRIL’s sales were driven mainly by the new store additions as the company’s same store sales growth improved by 7.4% as compared to 10.0% in FY08 for value retailing and 6.0%-
Lifestyle retailing as compared to 10.3% growth in FY08. We expect the sales to clock a growth of 30% in FY10E and a growth of 21% in FY11 E driven by store additions and improved same store sales growth. PRIL targeting to add 3mn sq ft of retail space per annum over the next few years, and has already tied-up for 20mn sq.ft.
Valuations
We believe the company will be able to post a double digit growth on the back of improving same store sales growth, addition of stores and changing consumer sentiment. However, operating margin will consolidate at current levels and expand post rebound in home retailing sales which is poised to improve on account of revival in the real estate sector. Interest cost concern will be addressed through the proposed restructuring process which will improve the operational efficiency and unlock the value of subsidiaries, which will further boost profitability. At the CMP of Rs294.0 the stock is trading at a 28.5x its
FY10 E EPS of Rs10.3 and 23.7x FY11E EPS of Rs.12.4. Historically, the company has been trading at much higher valuations (forward P/E of45x-65x) as compared current P/E of 35x. We value the company at 28x its FY11 earnings to arrive at a target price of Rs 347 per share, which represents an upside of 18.1%. We thus recommend a “Buy” on the stock.
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