>PANTALOON RETAIL (CENTRUM)

Focus shifts to profitability

Pantaloon Retail India’s (PRIL) revenue for FY09 (June year ending) rose 25.6% YoY to Rs63.4bn and EBITDA surged 45.2% to Rs6.7bn, inline with our estimates. However, higher depreciation resulted in lower 11.6% PAT growth at Rs1.4bn vs our estimate of Rs1.5bn. EBIDTA margin expanded 142bp to 10.5%, mainly on account of cost reduction.

■ Average sales per sq ft down: Same-stores-sales growth was tepid at 7% and this coupled with lower contribution from new stores resulted in 7% reduction in average sales per sq ft to Rs7,220 (vs Rs7,763 in FY08). The company expects to add 3mn sq ft over the next three years.

■ Cost rationalisation helps boost margin: The 142bp expansion in margin to 10.5% surprised as it was achieved despite the 40bp fall in gross margin. The management attributed this margin expansion to rationalisation across heads.

■ EBIDTA margins to improve: We believe steps to increase full price merchandise and core merchandise would help improve sales per sq ft. Further, rationalisation of warehousing and logistic costs is also expected to boost EBITDA margins going forward.

■ Focus shifts to profitability: The management has shifted its strategy from store roll-out to profit growth. We remain positive on the company and maintain our fair value of Rs389 on SOTP. We value retail business on DCF at Rs345, FCH at Rs39 and HSRIL at Rs6.

To see the full report: PANTALOON RETAIL