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Business News/ Money / Pantaloon Retail shifts focus to profitable growth
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Pantaloon Retail shifts focus to profitable growth

Pantaloon Retail shifts focus to profitable growth

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All these years, Pantaloon has been focusing on growth, reckoning that if it occupied prime space in the best retail developments, it will get a significant edge. This strategy involved being constantly in the investment mode, setting up new stores even as existing ones trudged towards break-even. Now, Pantaloon is changing focus from rapid sales growth to profitable growth. It expects its retail space to increase to 25 million sq. ft from 13 million sq. ft at present by around FY14 and revenues to grow at a more sedate pace of 25% annually. That is a big step down from its compound annual growth rate of 76% in space and 54% in sales, since 1999.

Graphics: Ahmed Raza Khan / Mint.

That will be good news for investors as the main drawback in Pantaloon’s performance is not at the operating level. On a stand-alone basis, in FY09, its operating profit margin has risen by 143 basis points. On a consolidated basis, by 148 basis points. One basis point is a hundredth of a percentage point.

However, net profit growth was hit by a sharp rise in depreciation and interest costs, of 75% and 87%, respectively, on a consolidated basis.

Pantaloon’s current strategy will mean that it will sweat its existing assets, improve operating margins; and the cash flows from its profitable stores can be used to pay down debt. In addition, a slower pace of expansion also means that Pantaloon will dilute equity at less frequent intervals. All of that translates into faster earnings expansion in thefuture, which is good news for shareholders. There is likely to be a time lag before Pantaloon’s new strategy shows up in its results. That may explain why its share price did not rise more sharply.

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Published: 29 Sep 2009, 10:10 PM IST
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