Result Update

September 2, 2010
Rating matrix
Rating : Add Pantaloon Retail (India) Ltd (PANRET)
Target : R 510
Target Period : 12 months R 466
Potential Upside : 9%
WHAT’S CHANGED…
Key Financials
PRICE TARGET ..................................................................Changed from R 451 to R 510
(R Crore) FY09 FY10 FY11E FY12E
Net Sales 6342 8926 10006 12474 EPS (FY11E) .................................................................................................. Unchanged
EBITDA 668 819 1089 1369 EPS (FY12E) .................................................................................................. Unchanged
Net Profit 141 230 284 373 RATING.......................................................................................................... Unchanged

Healthy same-store sales growth…

Valuation summary
FY09 FY10 FY11E FY12E Pantaloon Retail (India) Ltd (PRIL) reported strong Q4FY10 and FY10
PE (x) 63.2 41.8 34.6 26.4 numbers. Though these numbers are not comparable with the previous
Target PE (x) 69.1 45.7 37.9 28.8
year (on account of restructuring activity conducted by the company),
EV to EBITDA(x) 18.5 15.0 12.1 10.2
the numbers surely give us confidence about the company’s ability to
Price to book (x) 3.7 3.1 2.8 2.5
perform, going forward. On a consolidated basis, net sales increased
from R 7669 crore to R 9787 crore, while the EBITDA margin improved
RoNW (%) 6.2 7.0 8.6 10.2
from 6.7% in FY09 to 8.4% in FY10. PRIL reported a consolidated net
RoCE (%) 10.2 10.7 11.8 12.8
profit of R 76 crore as against a loss of R 6 crore in FY09. On a
standalone basis, the company reported net sales of R 8926 crore,
Stock data EBITDA margin of 9% and PAT of R 230 crore for FY10.
Market Capitalisation R 9615 crore
Debt (FY09) R 2850 crore ƒ Buoyant same-store sales growth
Cash (FY09) R 109 crore In Q4FY10, same-store sales growth (SSG) for value retailing stood
EV R 12356 crore at 11.5%, lifestyle retailing stood at 19.4% while home retailing was
52 week H/L (Rs) 531 / 278 56.9%. For the full year, SSG was 9.5%, 13.7% and 12.0% for the
Equity capital R 41.23 crore value, lifestyle and home retailing respectively. The incremental
Face value R2 sales to incremental capex ratio improved from 1.2x in FY09 to 4.2x
MF Holding (%) 8.66 in FY10 indicating that the company was able to generate
FII Holding (%) 25.81 incremental revenue from the existing set-up.
ƒ Balance sheet concerns being addressed
Price movement
During the year, the company infused equity worth R 600 crore while
6000 600
the debt levels have also improved. The overall debt maturity profile
5000 500 has also been enhanced to 3.9 years.
4000 400

3000 300
Valuation
2000 200 We continue to remain positive on the business model of the company.
We believe that the restructuring of the group will not only boost
1000 100
efficiency and translate into superior margins but also enhance the
0 0
returns of stakeholders. While we have not revised our numbers as of
Sep-09 NIFTY
Dec-09 PMantalo
ar-10 o n Retail
Jun-1 (India)
0 Ltd
now, we will do the same once more clarity on the structure emerges.
Based on our current DCF and SOTP valuations, we have arrived at a
target price of R 510. At the target price, the stock is trading at 37.9x and
Analyst’s name 28.8x its standalone FY11E and FY12E earnings, respectively. We have
maintained our ADD rating on the stock.
Bharat Chhoda
bharat.chhoda@icicisecurities.com
Exhibit 1: Financial Performance
Dhvani Modi
dhvani.bavishi@icicisecurities.com (R Crore) Q4FY10 Q4FY09 YoY(Ch%) FY10 FY09 YoY(Ch%)
Net Sales 2,494 1,663 50.0 8,926 6,342 40.7
EBITDA Margin (%) 8.5 11.0 (250 bps) 9.0 10.5 (150 bps)
Depreciation 58 39 48.7 212 140 51.4
Interest 97 91 6.6 391 318 23.0
Other Income 79 2 3,850.0 86 6 1,333.3
Reported PAT 99 36 175.0 230 141 63.1
EPS (R ) 4.8 1.9 154.1 11.2 7.4 50.7
Source: Company, ICICIdirect.com Research
ICICIdirect.com | Equity Research
Pantaloon Retail (India) Ltd (PANRET)

Restructuring Developments
During the year, PRIL realigned its business to create a focused retail pure
play. The objective was to divest as far as possible all non-retail
businesses and consolidate all its retail businesses under one umbrella
company. As part of this realignment, the company divested its interests
in subsidiaries involved in brand building, technology & knowledge
services, training & manpower development and mall management &
property services. To consolidate its retail businesses, it merged the
home solutions business, Home Solutions Retail (India) Ltd (HSRIL) with
itself. Also, a wholly-owned subsidiary, Future Value Retail Ltd (FVRL) was
created to operate its fast growing value retail business. The company’s
core retail business for the current year, therefore, includes the retail
businesses of PRIL, along with FVRL and HSRIL.

Exhibit 2: Consolidated Financials

(R Crore) FY10 FY09 YoY(Ch%)
Net Sales 9,787 7,669 27.6
EBITDA Margin (%) 8.4 6.7 170 bps
Depreciation 278 207 34.3
Interest 493 419 17.7
Other Income 126 96 31.3
Reported PAT 76 (6)
EPS (R ) 3.7 -
Source: Company, ICICIdirect.com Research

Net sales have been on an uptrend. However, the Q4FY10 Exhibit 3: Improving net sales
numbers cannot be compared with the previous year as
these include the sales of HSRIL and FVRL 3000.0
2494.0
2500.0
2057.6
1912.8
2000.0 1777.0
1642.1 1662.7
1511.2 1525.7
R Crore

1381.4
1500.0

1000.0

500.0

0.0
Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

Source: Company, ICICIdirect.com Research

The company added 1.9 million sq ft of area during FY10. This is in line
with the company’s strategy of adding 2.5–3.5 million sq ft each year for
the next couple of years.

ICICIdirect.com | Equity Research

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Pantaloon Retail (India) Ltd (PANRET)

Exhibit 4: Space additions during the year

7.4
7.5 6.4

5.0

2.2
2.5 1.6
1.1 1.2 0.9 1.0
0.4 0.5 0.7 0.7
0.1 0.1 0.1 0.2
0.0
Pantaloon Central & Home Town E-zone Others BB & FB KB's Fair Others
Brand Price
Factory

FY09 FY10

Source: Company, ICICIdirect.com Research

PRIL witnessed a 20% increase in the revenue per sq ft from R 5,612 in

FY09 to R 6,762 in FY10. Part of this can be attributed to the healthy SSG.
For Q4FY10, SSG under Value Retailing was 11.46%, Lifestyle Retailing
stood at 19.43% and Home Retailing at 56.9%. For the year, SSG under
Value Retailing was 9.48%, Lifestyle was 13.65% while Home Retailing
registered 12.02%.

Healthy SSG has enabled PRIL to reduce capex and yield Exhibit 5: Healthy SSG!
benefits from the existing assets. The incremental sales to
incremental capex ratio improved from 1.2x in FY09 to 4.2x 50.0%
38.0%
in FY10 40.0%
30.0% 21.1%
20.0% 14.9% 13.6% 12.0%
10.0% 7.4% 9.5% 10.3%
10.0% 6.0%

0.0%
-10.0% Value Lifestyle Home
-20.0%
-30.0%
-40.0% -30.4%

FY07 FY08 FY09 FY10

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Pantaloon Retail (India) Ltd (PANRET)

Exhibit 6: Sales mix

Value retailing has enjoyed a dominant share in the sales

100%
mix and the same is likely to continue, going forward 10% 16% 16% 15%
90%
80% 27%
70% 24% 24% 25%
60%
50%
40%
30% 63% 60% 61% 59%
20%
10%
0%
FY07 FY08 FY09 FY10

Value Lifestyle Home

Source: Company, ICICIdirect.com Research

Home Solutions Retail to aid growth

The company expects the housing segment to contribute to the topline
growth. While the current locations will stabilise, the company has also
identified various new locations for opening its stores in FY11. This
segment is likely to ride on the back of the boom in the housing
development.

Developers have also started to sell fully furnished apartments. HSRIL has
tie-ups with leading developers who source their entire interior
requirements from HSRIL. In this segment, the company has a robust
order book, which will be executed over the next two or three years
based on completion of construction activity.

Margins are not comparable on a YoY basis as HSRIL, Exhibit 7: Margin movement
which was a subsidiary earlier, has been merged with PRIL
in Q4FY10. Since HSRIL is a loss making format, the 12.0
11.0 10.7 10.6
EBITDA margin for Q4FY10 has declined 10.2 10.2 10.3 10.5 10.5
10.0
8.5
8.0

6.0

4.0 4.0
2.4 2.4 2.5 2.6 2.7
2.0 2.2 2.1 2.2

0.0
Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

PAT Margin (%) EBITDA Margin (%)

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Pantaloon Retail (India) Ltd (PANRET)

A continuous increase in footfalls gives us the confidence Exhibit 8: Improving footfalls ensure consumption story is intact
that the India consumption story is intact
14 13.2 250
12
9.7 200
10
7.9

In mn. sq. ft.

In millions
8 150
220
6 5.1
185 100
4 163
115 50
2
0 0
FY07 FY08 FY09 FY10*

Total Retail Space (mn. sq. ft.) Footfalls #

Source: Company, ICICIdirect.com Research

* - Retail space for FY10 includes PRIL, HSRIL and FVRL

# - Footfalls for PRIL and FVRL only, excludes HSRIL

Valuations
We continue to remain positive on the business model of the company.
We believe that the restructuring of the group will not only boost
efficiency and translate into superior margins but also enhance the
returns of the stakeholders. While we have not revised our numbers, as of
now, we will do the same once more clarity on the structure emerges.
Based on our current DCF and SOTP valuations we have arrived at a
target price of R 510. At the target price, the stock is trading at 37.9x and
28.8x its standalone FY11E and FY12E earnings, respectively. We have
maintained our ADD rating on the stock.

Exhibit 9: SOTP Valuations

Total Value
Name of the company Basis of Valuation (R Crore) PRIL share Per Share Value
Standalone Value DCF 8,817 8,817 452
Subsidiaries
Future Capital (54.8% stake) Market Capitalisation 1,641 629 32
Future Logistics (94.8% stake) Stake purchase by Li Fung 531 503 26
Total 12,304 10,830 510
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Pantaloon Retail (India) Ltd (PANRET)

ICICIdirect.com coverage universe (Retail)

Pantaloon Retail Sales (R Crore) EPS (R) PE (x) EV/EBITDA RoNW(%) RoCE (%)
Idirect Code PANRET CMP (R) 466 FY10 8926.0 11.2 41.8 15.0 7.0 10.7
Target (R) 510 FY11E 10006.1 13.5 34.6 12.1 8.6 11.8
MCap 9614.8 Upside (%) 9 FY12E 12473.6 17.7 26.4 10.2 10.2 12.8

Koutons Retail Sales (R Crore) EPS (R) PE (x) EV/EBITDA RoNW(%) RoCE (%)
Idirect Code KOURET CMP (R) 306 FY10 1205.4 26.9 11.3 6.1 17.7 20.5
Target (R) 331 FY11E 1350.5 26.1 11.7 6.3 14.7 18.2
MCap 961.7 Upside (%) 8 FY12E 1506.7 33.1 9.2 5.5 16.0 19.8

ICICIdirect.com | Equity Research

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 Pantaloon Retail (India) Ltd (PANRET)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
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as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
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