>Pantaloon Retail (India) Ltd

WHAT’S CHANGED…
PRICE TARGET....................................................................................................Unchanged
EPS (FY12E)........................................................................................................Unchanged
EPS (FY13E)........................................................................................................Unchanged
RATING........................................................................................Changed from Hold to Sell


Mission “debt reduction” continues!


We met the management of Pantaloon Retail Ltd (PRIL) to get an insight into the impact of the series of announcements focusing on debt reduction and also to understand the company’s strategy, going forward. While the Street was expecting the stake sale in Future Capital, the news on the stake sale in the flagship ‘Pantaloon’ format came as a surprise. Debt reduction continues to remain the key focus at the helm. However, the management is disheartened (yet not losing hope) about the subdued consumer sentiment. Some of the key triggers for the Indian retail sector remain – rolling out of goods & services tax (GST) and opening up of the multi-brand retail sector to foreign direct investment (FDI).


Addressing the mountain of debt
PRIL was facing the double trouble of inventory pile-up and rising debt levels. The management, being consciously aware of this, had clearly stated their intent of addressing these concerns. The company started to make announcements one after the other from early May 2012. Going by what has been announced, we expect PRIL’s debt to remain in the range
of | 3,400 – 3,600 crore (excluding the insurance stake sale). Cautious on space addition plans; could be revised on demand revival PRIL has, in the recent past, lowered its space addition guidance from 2.0-2.5 million sq ft to 1.5 million sq ft considering the slowdown in demand and abysmally low same store sales growth. This step is also being taken to curtail the piling inventory. However, the management has also guided that this target could be revised upwards in case there is a turnaround in consumer sentiment.


Valuation
The stock has witnessed a significant up move on the back of the series of news announcements relating to debt reduction. However, we are maintaining our target price and will the revise the same (if necessary) after monitoring the performance of the company, going forward. A revival in demand and improvement of consumer sentiment will also warrant an upwards earnings revision. We have valued PRIL at 0.6x FY13E EV/sales (based on 20% discount to Shoppers Stop) to arrive at a target price of | 148. Any investors holding the stock can book profits at current levels and consider re-entering the stock on any fall.