Pantaloons: recent restructuring has not brought cheer for investors

Consumer sentiment has been weak and that’s reflecting in the financial performance of retailers
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First Published: Sun, Nov 18 2012. 03 33 PM IST
Pantaloon has been struggling with weak same-store sales growth for some quarters now. Photo: Ramesh Pathania/Mint
Pantaloon has been struggling with weak same-store sales growth for some quarters now. Photo: Ramesh Pathania/Mint
Updated: Sun, Nov 18 2012. 11 30 PM IST
Investors do not seem to be giving brownie points to the fashion business demerger of Pantaloon Retail (India) Ltd. Since the announcement on 9 November, its stock has declined 7% while the benchmark Sensex has declined 2%.
Under the realignment, Pantaloon and Future Ventures India Ltd (FVIL) will consolidate their fashion businesses into a new firm, Future Fashion, which will, eventually, be listed. According to the company, this exercise is aimed at simplifying the business structure and providing growth impetus to individual businesses.
For Pantaloon, this will help reduce debt by about of Rs.1,226 crore, which will be transferred to Future Fashion. In a recent interview with CNBC TV18 news channel, Pankaj Jaju of Axis Capital, one of the financial advisors to Pantaloon, said the retailer will emerge with a debt of Rs.2,500 crore post this and other restructuring plans, which include the Pantaloon retail format demerger and the sale of Future Capital.
It’s a no-brainer that a decline in debt would be helpful. Interest costs have been taking a toll on the company’s profitability for some time now. For the September quarter, Pantaloon’s core retail business interest costs accounted for as high as two-thirds of operating profit.
Of course, the realignment is not going to happen immediately and will depend on getting the necessary approvals. At this point of time, investors could be a bit sceptical about how all the restructuring that Pantaloon is undertaking will pan out eventually. Moreover, operationally, the scenario does not seem to be improving much. It is well-known that the going hasn’t been good for Indian retail companies on the operational front for the past few quarters. Consumer sentiment has been weak and that’s reflecting in the financial performance of retailers, and Pantaloon is no exception.
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Pantaloon has been struggling with weak same-store sales (SSS) growth for some quarters now. Same-store sales measure growth based on the stores open for at least a year. Nevertheless, the September quarter did bring some cheer on the lifestyle retail front, which saw double-digit SSS growth of 10.8%. That was the strongest lifestyle SSS growth for the last five quarters.
But the value and home retail SSS growth continued to remain weak. Higher interest expenses and depreciation costs meant that Pantaloon’s profit before tax fell to Rs.4.4 crore from about Rs.47 crore in the same period last year. That does look miserable on a total operating revenue of Rs.3,060 crore for the September quarter.
The current quarter should likely bring in better numbers, thanks to the festival season. That apart, in the near-term, there is not much on the plate for investors to be elated.
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First Published: Sun, Nov 18 2012. 03 33 PM IST
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