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Pantaloon Retail Financial Analysis
Pantaloon Retail Financial Analysis
Pantaloon Retail Financial Analysis
ANALYSIS
OF
The company’s leading formats include Pantaloons, a chain of fashion outlets, Big
Bazaar, a uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends
the look, touch and feel of Indian bazaars with aspects of modern retail like choice,
convenience and quality and Central, a chain of seamless destination malls. Some of its
other formats include Brand Factory, Blue Sky, aLL, Top 10 and Star and Sitara.
Different categories
Wellness/ Beauty
Leisure/ Entertainment
General Merchandise
Home/ Electronics
Telecom/ IT
Fashion
Books/ Music
Food
e-tailing
The scope and potential of the Indian economy in general, and the domestic
consumption sector in particular is characterized by some irreversible trends. These
include a young demographic profile, increasing consumer aspirations, growing middle
class in urban areas and the growth in the rural economy. However, the last twelve
months were also characterized with an unprecedented economic turmoil that tested
managerial, strategic and leadership skills across organizations. The organization rose up
to the challenge by taking significant steps to secure, preserve and enhance its economic
value creation.
Operational Overview
The two key strategic objectives that the Company has pursued are gaining a
leadership position in key geographies and in key categories of consumption. The top
eight cities–Mumbai, Delhi, Bangalore, Kolkata, Hyderabad, Chennai, Pune and
Ahmedabad- is where the largest share of addressable consumption markets resides.
Now, almost 60% of the Company’s stores are located in these key eight cities and 25%
are in the fast growing tier II cities and the balance in the tier III and smaller towns. The
Company intends to continue building its dominance within the bigger cities for which its
roadmap is clear.
The Company has identified four categories that it will focus on and these
categories capture more than 70% of the consumers’ wallet. These categories are –
fashion, food, general merchandise and home, which includes consumer electronics and
furniture.
Business Outlook
The current year marked a significant milestone for the Company when it opened
its 100th Big Bazaar store within a record time of seven years. As on June 30, the
Company operated 116 Big Bazaars, 148 Food Bazaars, 45 Pantaloons and 9 Centrals,
that covered 9.7 million square feet of retail space and attracted footfalls of 185 million
customers. This data is only of Pantaloon Retail (India) Limited and does not include that
of its subsidiaries.
The business risk from competition has temporarily reduced in last one year due
to exit of some of the players and change of strategy of other players in the organised
retail business. However, with revival of the economy it would surely attract new players,
who would enter the business in more planned manner and better financial resources. The
Company being present across various categories and capturing various segments of
customers, would be able to meet competition without much problem.
Ratio analysis is a powerful tool for financial analysis. A ratio is defined as “the
indicated quotient of two or more mathematical expressions” or as “the relationship
between two or more things”. In financial analysis, a ratio is used as a benchmark for
evaluating the financial position and performance of the firm. The relationship between
two accounting figures, expressed mathematically, is known as a financial ratio. Ratios
help to summarize large quantities of financial data and make qualitative judgment about
the firm’s financial position.
Liquidity ratios
They measure the ability if the firm to meet its current obligations.
1. Current Ratio
It is the measure of the firm’s short term solvency. As a conventional rule, a current ratio
of 2:1 or more is considered satisfactory. It represents a margin of safety for creditors.
2005 2.79
2006 3.44
2007 4.86
2008 4.10
2009 3.60
The current ratio of Pantaloon Retail India Limited is considered highly satisfactory since
the ratios are more than 2 every year. It signifies the company is more than sufficiently
liquid.
2. Quick Ratio
It establishes a relationship between quick or liquid assets and current liabilities. Quick
ratio of 1:1 is generally considered satisfactory.
2005 0.88
2006 1.37
2007 2.40
2008 1.87
2009 1.64
Thus for Pantaloon Retail India Limited, since the quick ratios maintain above 1, they can
easily pay off its current liabilities even if the inventories are not sold.
3. Cash Ratio
The cash ratio is an indicator of a company's liquidity that further refines both the current
ratio and the quick ratio by measuring the amount of cash, cash equivalents or invested
funds there are in current assets to cover current liabilities.
2005 0.42
2006 0.80
2007 1.21
2008 1.14
2009 1.19
Year NWC
2005 0.49
2006 0.52
2007 0.56
2008 0.48
2009 0.45
Leverage Ratios
Leverage ratio is any ratio used to calculate the financial leverage of a company to get
an idea of the company's methods of financing or to measure its ability to meet financial
obligations. It is a ratio used to measure a company's mix of operating costs, giving an
idea of how changes in output will affect operating income.
1. Debt ratio
A ratio that indicates what proportion of debt a company has relative to its assets. It is the
measure that gives an idea to the leverage of the company along with the potential risks
the company faces in terms of its debt-load.
2005 0.56
2006 0.53
2007 0.54
2008 0.54
2009 0.55
The debt ratio of the year 2009 indicates that, for that very year, 55% of the firm’s net
assets are financed by lenders and the remaining 45% by the owners.
2005 1.29
2006 1.14
2007 1.19
2008 1.18
2009 1.25
3. Coverage Ratio
2005 1.26
2006 2.13
2007 2.30
2008 2.13
2009 1.79
4. Activity Ratio
Accounting ratios that measure a firm's ability to convert different accounts within their
balance sheets into cash or sales i.e. to evaluate the efficiency with which the firm
manages and utilizes its assets.
2005 2.02
2006 1.61
2007 1.32
2008 1.22
2009 1.21
The fixed-asset turnover ratio measures a company's ability to generate net sales from
fixed-asset investments - specifically property, plant and equipment (PP&E) - net of
depreciation. A higher fixed-asset turnover ratio shows that the company has been more
effective in using the investment in fixed assets to generate revenues.
Fixed Asset Turnover = Sales
Net Fixed Assets
2005 4.90
2006 6.05
2007 4.70
2008 4.21
2009 4.04
Pantaloon Retail India Limited required investments of 4.90, 6.05, 4.70, 4.21 & 4.04 in
fixed assets for each of the years from 2005-09 respectively to generate a sale of 1Rs.
Current Assets Turnover ratio, shows the productivity of the company's current assets.
Pantaloon Retail India Limited required investments of 2.68, 2.21, 1.85, 1.92 & 1.93 in
current assets for each of the years from 2005-09 respectively to generate a sale of 1Rs.
Profitability Ratio
A class of financial metrics that are used to assess a business's ability to generate earnings
as compared to its expenses and other relevant costs incurred during a specific period of
time. For most of these ratios, having a higher value relative to a competitor's ratio or the
same ratio from a previous period is indicative that the company is doing well.
A financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings.
2005 35
2006 33
2007 32
2008 30
2009 30
This number is an indication of how effective a company is at cost control. The higher
the net profit margin is, the more effective the company is at converting revenue into
actual profit.
2005 4
2006 4
2007 4
2008 2
2009 2
3. Return On Investment
Return on investment is a very popular metric because of its versatility and simplicity.
That is, if an investment does not have a positive ROI, or if there are other opportunities
with a higher ROI, then the investment should be not be undertaken.
2005 23.98
2006 17.44
2007 16.57
2008 10.59
2009 9.52
The sum of declared dividends for every ordinary share issued. Dividend per share (DPS)
is the total dividends paid out over an entire year (including interim dividends but not
including special dividends) divided by the number of outstanding ordinary shares issued.
The percentage of earnings paid to shareholders in dividends. The payout ratio provides
an idea of how well earnings support the dividend payments. More mature companies
tend to have a higher payout ratio.
A measure of both a company's efficiency and its short-term financial health. The
working capital ratio is calculated as:
Working Capital = Current Assets – Current Liabilities
Positive working capital means that the company is able to pay off its short-term
liabilities. Negative working capital means that a company currently is unable to meet its
short-term liabilities with its current assets (cash, accounts receivable and inventory).
If a company's current assets do not exceed its current liabilities, then it may run into
trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A
declining working capital ratio over a longer time period could also be a red flag that
warrants further analysis. For example, it could be that the company's sales volumes are
decreasing and, as a result, its accounts receivables number continues to get smaller and
smaller.
Working capital also gives investors an idea of the company's underlying operational
efficiency. Money that is tied up in inventory or money that customers still owe to the
company cannot be used to pay off any of the company's obligations. So, if a company is
not operating in the most efficient manner (slow collection), it will show up as an
increase in the working capital. This can be seen by comparing the working capital from
one period to another; slow collection may signal an underlying problem in the
company's operations.
2005 259.05
2006 620.09
2007 1389.86
2008 1990.91
2009 2370.89
EBIT
In other words, EBIT is all profits before taking into account interest payments and
income taxes. An important factor contributing to the widespread use of EBIT is the way
in which it nulls the effects of the different capital structures and tax rates used by
different companies.
2005 93.91
2006 149.64
2007 307.63
2008 464.28
2009 674.50
The constant rise indicates proper working capital management and efficient production
system enabled with minimum of expenditure.
The break-even point for a product is the point where total revenue received
equals the total costs associated with the sale of the product. A break-even point is
typically calculated in order for businesses to determine if it would be profitable to sell a
proposed product, as opposed to attempting to modify an existing product instead so it
can be made lucrative.
Break even analysis can also be used to analyze the potential profitability of an
expenditure in a sales-based business.
BEP (Rs in
Year P/V Ratio Crores)
If the ARR is equal to or greater than the required rate of return, the project is
acceptable. If it is less than the desired rate, it should be rejected. When comparing
investments, the higher the ARR, the more attractive the investment.
Year ARR %
2005 33.08
2006 13.31
2007 13.2
2008 8.62
2009 6.65
EPS
The portion of a company's profit allocated to each outstanding share of common stock.
Earnings per share serves as an indicator of a company's profitability.
Earnings per share is generally considered to be the single most important variable in
determining a share's price. It is also a major component used to calculate the price-to-
earnings valuation ratio.
2005 3.31
2006 5.06
2007 8.71
2008 7.54
2009 7.94
Initial investment i.e. in 2005 was Rs. 520 Cr. Therefore the payback of the entire
investment happened during the year 2007-08.
Capital Surplus
Capital Surplus
Year (Rs in Cr)
2005 196.53
2006 500.02
2007 1,062.82
2008 1,751.50
2009 2,211.48
The data indicates that the capital surplus of Pantaloon Retail India Limited has increased
throughout the last five years. This shows the firm is running profitably. So positive signs
suggests the potential of the firm for more investment and expansion plans.
Conclusion
As the above data shows there was an increase in the earnings per share for the
last 5 years for Pantaloon Retail India Limited. The only exceptional case was during the
year 2007-2008. But immediately the next year, the firm bounced back with increase
again. This data is sufficient to prove the success of the company and a profitable one too
with the capital surplus and revenue profit seemed to be increasing year after year.