Pantaloon Retail - Mahurat Picks 2012 - ICICIdirect

(Buying Range: Rs.200-Rs.190)

Pantaloon Retail (PRIL), India's largest domestic retailer, has a total operational space of 16.7 million sq ft. Through a series of stake sales (including de-merger of the flagship 'Pantaloon' format, Future Capital stake sale, etc) the company plans to raise ~ Rs. 2,500 crore, which will be used towards debt reduction. This will lead to an annualised interest savings of ~ Rs. 120 crore, thereby boosting profitability by ~30% in FY14E

PRIL is currently in the space consolidation phase and is closing down unviable stores, thereby saving costs. Prudent space addition, going forward, and cost rationalisation will enable PRIL to maintain its operating margin in the 8.5-9.5% range despite the high margin business (Pantaloon) being hived off. Also, a higher churn due to increasing share of food will ease the working capital requirements of the company

Going forward, the stake sale in the insurance business (expected to be announced by December 2012), sale of weaker performing business like Ezone and HomeTown, long term benefits of FDI in multi-brand retail and roll out of Goods & Services Tax (GST) will work in PRIL's favour. While we expect PRIL's topline to grow at a CAGR of 7.8% (FY11-14E), PAT is expected to grow at a CAGR of 41.5% owing to reduced interest costs. We have valued Pantaloon Retail at 0.7x FY14E EV/Sales to arrive at a target price of Rs. 248.

Source : Equity Bulls

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