Saturday, November 28, 2009


What's new? — PRIL management outlined a broad scheme for the de-merger of non retail assets. In brief: 1) Big Bazaar and Food Bazaar (~70% of FY09 PRIL parent revenues) will be transferred into a 100% subsidiary of PRIL. 2) The insurance ventures and Future Capital Holdings will be placed in a separate finance vertical. The holding company (for the insurance businesses) will be duly listed. 3) Three support businesses (IT, brand development and learning) have been carved out for a consideration of Rs1.9bn.

Implications — a) Positive for parent balance sheet – cash intensive financial services business can chart growth path without dependence on PRIL for capital infusion; b) Creates possibility for separate listing and infusion of FII into Big Bazaar + Food Bazaar at a later juncture (PRIL is at FII limit at present); and c) PRIL's resources to be conserved to meet growth aspirations.

Buy: Organisational Restructuring — Broad Contours Outlined

Other analyst meeting takeaways — a) Timeline for restructuring of financial services business is 30-45 days; b) Balance sheet restructuring should result in debt to equity levels improving – management targets debt equity levels of ~0.8x (vs. ~1.2x now); c) Target to increase retail space to 25m sq ft by FY14, which includes 10m sq ft capex in PRIL (capital outlay of ~US$350-400m); and d) Guidance on key metrics maintained – (i) management targets reducing inventory to ~Rs1600/sq ft, (ii) revenues of ~Rs9000/sq ft.

Maintain Buy (1M) — We expect the stock to remain buoyant as more clarity on the de-merger emerges. Improvement in retail business (solid SSS growth trends in October) also buttresses our thesis that PRIL is well positioned to capture the rebound in urban consumption.

To read the full report: PANTALOON RETAIL