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Cost pressures affect Pantaloon results

Cost pressures affect Pantaloon results
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First Published: Sun, Feb 13 2011. 09 34 PM IST
Updated: Sun, Feb 13 2011. 09 34 PM IST
Pantaloon Retail (India) Ltd’s result for the quarter ended 31 December was disappointing. Revenue from the core retail business increased by 31% over the same period last year to Rs 2,760 crore and net profit increased by 5.5% to Rs 47 crore. That’s not so good considering that the December quarter this fiscal year was the festival season.
In contrast, though revenue had increased by a similar pace (up 32%) in the September quarter, core retail net profit had increased at a faster pace of 62%. Higher interest expenses and depreciation costs have played spoilsport in the December quarter at the net level.
Also See | Margin concerns (PDF)
Revenue growth was driven by store expansions and same-store sales. Such growth in the lifestyle retail, including upscale goods such as apparel and accessory, increased by 20.9% and that of the value-retailing business increased by 11.5%. Growth in same-store sales in the home retailing business stood at 18.3%.
Operating performance was weak with margins falling by 150 basis points to 8.6% from 10.1% in December last year. In an investor presentation, the company maintains that revenue growth in the home retailing business was helped by the electronics category, but margins were lower on account of competitive pressures. Total raw material costs have gone up sharply by 35% in the December quarter. One basis point is one-hundredth of a percentage point.
While investors of Shoppers Stop Ltd have rejoiced this year, Pantaloon’s investors had no such luck with the stock down 37%. And while the downside may be limited from the current level, some concerns remain.
One, firm interest rates and higher inflation implies challenging times ahead. Secondly, the firm is looking at expanding the proportion of lower margin foods business in the total product mix in the coming years, which could put pressure on overall margins. Also, analysts are concerned over the uncertainty on the timeline for the company’s restructuring, which started a year and a half ago.
Graphic by Paras Jain/Mint
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First Published: Sun, Feb 13 2011. 09 34 PM IST