>India Retail Sector (CLSA)

Pantaloon’s Feb-09 update: Marginal SSS growth in value and lifestyle, 10% SSS decline in Home Solutions. See inside for details

Subhiksha and Vishal: Feeling the heat of tight liquidity; Pantaloon also scores low on debt coverage and gearing. See inside for details

Reliance Retail: Aggressive ramp-up, but still running 18 months behind schedule. See inside for details

Rating agency downgrades Vishal Retail; financial position remains tight.

• Sharp deterioration in profitability and high gearing levels (c.2.4x for FY09CL) has impacted Vishal Retail’s ability to service debt obligations forcing rating agencies to downgrade its short and long-term credit ratings.
  

• While the company was recently able to roll-over Rs500m of short-term debt, albeit with some delay, management’s next task is to rollover Rs900m of additional short-term debt.
  

• While some of the top level employees have recently resigned, more are, reportedly, expected to submit resignation.

• While the management recently stated that Vishal has not been able to generate positive cash flows from operations in the first two months of 4QFY09, it is important to note that as on Dec-08, Vishal had debt of Rs7.6bn and inventory of nearly an equal amount.
  

Bharti Retail plans to close 4-5 of its 28 stores.

• Bharat Retail, the retail arm of Bharti Enterprises, which operates a chain of 28 ‘Easyday’ supermarket stores in the North India (Punjab, Haryana), plans to close 4-5 of its non-performing stores.
  

• In an interview to media group Chairman Sunil Mittal has said, “All of us have to go through that. Pantaloon closed its stores, Reliance closed its stores, we are going to close stores despite having 28. The more you have the bigger the problem you have obviously.”
  

Spencer’s plans to re-focus on new store opening.

• Spencer’s Retail, CESC’s 94% subsidiary, plans to re-focus on opening new stores after having closed 50-60 loss making stores over the last six months which has reduced its store count to 310.
  

• Spencer's currently has 35 large-format stores under the brand name of Spencer’s Hyper and plans to open 15 new stores in 2009.

• During FY08, Spencer’s Retail reported sales of Rs8.5bn, pre-tax loss of Rs1.5bn and net loss of Rs0.9bn.

• In Dec-08, the management of CESC had announced that the group will focus on achieving break-even for the retail business by Dec-09 and if Spencer’sis unable to achieve the desired performance, CESC may even look to exit the retail business.
  

Sodexo to acquire Radhakrishna Hospitality Services for US$100m

• Sodexo has signed an agreement to acquire the Radhakrishna Hospitality Services Group (RKHS), one of the leading providers of Food and Facilities Management services in India. The deal is likely to be closed in the next 3-6 months.
  

• Promoters of RKHS also own Foodland Fresh, Mumbai-centric chain of convenience stores. The group had recently closed nearly all of its 42 stores in the city.
  

To see full report: INDIA RETAIL SECTOR