Pantaloon Retail (Buying Range: |200-|190)
• Pantaloon Retail (PRIL), India’s largest domestic retailer, has a
total operational space of 16.7 million sq ft. Through a series of
stake sales (including de-merger of the flagship ‘Pantaloon’
format, Future Capital stake sale, etc) the company plans to
raise ~ | 2,500 crore, which will be used towards debt
reduction. This will lead to an annualised interest savings of
~ | 120 crore, thereby boosting profitability by ~30% in FY14E
• PRIL is currently in the space consolidation phase and is closing
down unviable stores, thereby saving costs. Prudent space
addition, going forward, and cost rationalisation will enable PRIL
to maintain its operating margin in the 8.5-9.5% range despite
the high margin business (Pantaloon) being hived off. Also, a
higher churn due to increasing share of food will ease the
working capital requirements of the company
• Going forward, the stake sale in the insurance business
(expected to be announced by December 2012), sale of weaker
performing business like Ezone and HomeTown, long term
benefits of FDI in multi-brand retail and roll out of Goods &
Services Tax (GST) will work in PRIL’s favour. While we expect
PRIL’s topline to grow at a CAGR of 7.8% (FY11-14E), PAT is
expected to grow at a CAGR of 41.5% owing to reduced interest
costs. We have valued Pantaloon Retail at 0.7x FY14E EV/Sales
to arrive at a target price of | 248.
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