This request for my view on Pantaloon Retail at Rs 316 (FV Rs 2) just came in from Srikanth…says he a ‘big’ blog follower….Thanks !…Hope ‘big’ as not in weight and size !, Srikanth …..unless you’re describing your heart or wealth of mind or monies !
Srikanth has reminded me of this listed Retail Play…Kishore Biyani’s Pantaloon Retail……If you look at the extreme ends of the calendar year 2010,then you may conclude It has not played out at all…beginning at Rs 400 levels and ending 10% lower at Rs 360-Rs 370 levels…and then last week collapsing 20% to the current 52 week low of Rs 316…..But check out the High in 2010….Rs 557 intra day in July 2010…so clearly it’s been a Traders nightmare in 2010….having been pumped as a stock recommendation by many brokerage houses
The Shareholding pattern too is interesting…It’s an Institutional Favourite…At September 30,2010,Promoters held 44.78%,FIIs held a strong 24.40 % while domestic Institutions held 18.53%
I’m intrigued by this Retail Play and shall be studying it’s Business Model a bit deeper and soon too….It’s restructured to concentrate on the four major domestic consumption segments of Food,Fashion,General Merchandise and Home Goods that includes Electronics and Furniture and Home Improvement
It has achieved reasonable scale and geographical spread with great potential going forward….It is now concentrating on improving supply chain efficiencies which are simply critical for profits and survival…..
At this stage,should you have Pantaloon Retail in your Equity Portfolio ?….The other peer group choices are Tata’s Trent at Rs 873 (FV Rs 10) and now Chandru Raheja’s Shoppers Stop at Rs 339 (FV Rs 5)…In revenue scale Pantaloon Retail simply towers over these
Pantaloon Retail Shareholders under a Scheme of Arrangement also will now hold 1 share of FV Rs 10 of Future Mall Management Ltd for every 20 shares of FV Rs 2 held by them in Pantaloon Retail
In 2009/10,the company made a QIP of Rs 500 crs issuing 1.58 cr shares at Rs 316…..One crore warrants too have been issued to the promoters that can be exercised for conversion to Equity at Rs 400/share by December 2011
Company is planning to raise Rs 750 crs more this year…..in FY 2010/11 it plans to increase operating retail space to 13.25 million feet from 11.65 million it had in FY 2009/10
So as Kishore Biyani tries to reGain his Magic touch and set up a new magic team and reFreshes by reStructuring and rePositioning his FUTURE Group do have a reLook at Pantaloon Retail….At Rs 316 It is available at 2.5 times FY 2009/10 Book ….my sense is that the years ahead hold great opportunity for the organised Retail Sector….but with it come the challenges of competition and achieving operational scale and efficiencies….with current concerns of rising inflation and therefore higher interests rates in the offing,my sense is that Pantaloon Retail will seek lower levels towards Rs 250 first before it gets back some colour
If you’re playing the risk of Pantaloon Retail,do so preferably at lower levels and keep a three to five year perspective….I shall be keeping a watch on this Rs 6300 crs Market Cap Scrip….it has the potential to zoom to Rs 50000 crs ! market cap in the next five years !
…and if government allows FDI in multi brand retail…..Carrefour of France may just buy into Pantaloon Retail
Adding just a word of caution though…..
If you’re backing Pantaloon Retail you’d be backing Kishore Biyani who also later promoted Future Capital Holdings (FCH)….The January 2008 IPO of FCH ,that preceded the huge Reliance Power IPO ,was oversubscribed a whopping 134 times and the Price was Fixed at Rs 765…It has collapsed to Rs 167 in three years,eroding 80% of the IPO price…to recover this IPO level it has to pull back 400% !…Vaidyanathan of ICICI has been roped in to revive some impetus in FCH….but will he be able to do so under Kishore Biyani….Biyani has had a vision and operating focus and gameplan fall out with co promoter Sameer Sain ex Goldman Sachs on the way FCH must function
….With a current Equity of Rs 64 crs,FCH earned a net of just Rs 17 crs last year,though it should perform better this year…..Fully Diluted Equity could cross Rs 75 crs this year if warrants and ESOPs get exercised….working backwards,FCH needs to post Rs 250 crs net profit on the diluted equity to record an EPS of over Rs 30…which in turn could move it towards the IPO Price of Rs 765!…Very very unlikely in the near term !…..was Biyani simply lucky with the ‘Big Bazaar’ concept which was lifted off of the US Wallmart Super Market Model of Low Prices,Large Variety,Large Volumes and Free Parking…an Idea whose time had come in India…and Biyani was lucky to ride this wave….and Lightening will not strike twice in the same place ! ?
In the early 1990s an unheralded,not much in the limelight,Biyani had nothing much to lose and hit big time with his ‘Big Bazaar’ Chain….it’s different now….he says the idea of Future Capital Holdings was conceived in the back of a Car….maybe so…but he needs to be in the front seat driving his Future Group to higher ROIs….and harder and more Physical Assets than just ‘Ideas & Idealogies’ on the basis of which successful allottees gave him Rs 765 per share in the January 2008 IPO and must be rueing in hindsight of having done so