The Pantaloon Retail (India) Ltd stock has gone up by 17% to Rs.237 since it announced its September quarter results.
This appreciation has little to do with its financial performance. Pantaloon is expected to be the biggest beneficiary of the government’s decision to widen foreign direct investment (FDI) in retail. Earlier this month, all doubts whether FDI in the retail sector would be rolled back were laid to rest with both Houses of Parliament registering their approval.
What also helps is that the company is in a realignment phase, in which Pantaloon and Future Ventures India Ltd will consolidate their fashion businesses into a new firm, Future Fashion, which will be listed eventually. “Inventory days, which are about 120 currently, will fall to 100-110,” pointed out analysts from Edelweiss Securities Ltd in a note on 19 December.
This realignment is expected to simplify the structure and make the business attractive to foreign partners.
Of course, it will be a while before the actual benefits of FDI come through.
Meanwhile, on the operational front, the current quarter is expected to be better on account of the festival season. In general, retail companies have been facing pressure on same-store sales growth. Same-store sales measure growth based on stores that were open for at least a year.
Shoppers Stop Ltd has seen its like-to-like sales volume decline by 4% in the last two quarters.
On the other hand, Pantaloon performed well on the lifestyle retail front, which saw double-digit same-store sales growth of 10.8%, the strongest in the last five quarters. However, home and value retail same-store sales growth remained lacklustre. Higher interest costs and depreciation also spoiled the show for Pantaloon’s profitability. The Pantaloon stock, though, has outperformed the benchmark Sensex thanks to the FDI newsflow.
While the current quarter is likely to be strong because of the festival season, what happens to consumer sentiment in the next quarter will be an important measure to track for investors.