Mumbai: Pantaloon Retail India Ltd, the country’s largest listed retailer, posted a net profit growth of 15.2% at Rs18.71 crore for the quarter ended 31 March 2007, against Rs16.24 crore in the same quarter a year ago.
But the real story is in the earnings per share (EPS), which remained flat although turnover grew 73% for the third quarter. This is indicative of the pressure Pantaloon faces on margins as it expands rapidly and seeks to shed its image as only a value retailer. EPS was Rs1.33 compared with Rs1.32 in the previous year. While income from operations increased 89%, net profit was up 15.2%.
Pantaloon plans to have 100 Big Bazaar stores—the supermarket chain which is the largest among Pantaloon’s several retail formats—from around 50 currently. It opened seven new Pantaloon stores, its department store format, and opened its first home furnishings store, Home Town, in March.
The spate of new stores had analysts worried about margins even before the results were announced. “Margins could be squeezed because there are many stores opening,” said Sunita Sachdev, a retail analyst at UBS Securities.
The Pantaloon stock has been trading at more than 86 times last year’s earnings as investors have bought into the growth story of India’s organized retail sector.
While organized retail forms only 3% of India’s $320 billion (Rs13 lakh crore) retail sector, according to a report by management consulting company AT Kearney, it could grow at over 30%, according to a report by CLSA India, an international brokerage firm.
But with several large players, including Wal-Mart, Reliance Industries Ltd and the Aditya Birla Group planning to enter the retail sector, Pantaloon faces pressure to compete and acquire scale.
This expansion has meant that interest and finance charges have more than doubled to Rs22.88 crore for the third quarter, from Rs10.07 crore in the same quarter last year. “We do have concerns about expansion and diversification. But there will be an unlocking of value through Pantaloon’s many subsidiaries,” said a retail analyst at a foreign brokerage.
Pantaloon’s value retailing segment grew to Rs558.46 crore, from Rs297.86 crore, up 87.5%, whereas the higher end, high-margin lifestyle retailing segment grew to Rs283.32 crore from Rs152.8 crore, or 85.4%. This is reflective of the company’s aspirations to be in the premium retail space as well. The supermarket space is set to become among the most competitive, analysts said. “The food and grocery business is too risky for a large player because margins are low and perishables have a limited shelflife,” said Hitesh Kuvelkar, associate director for research at First Global, a Mumbai-based brokerage.