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basant
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Quote basant Replybullet Topic: Pantaloon Retail - Targetting 100% growth y-o-y.
    Posted: 10/Aug/2006 at 3:40pm

Pantaloon Retail Ė Relying on growth

 

I had written about Pantaloon Retail on this forum under the topic  The Multibagger Portfolio when it was at Rs 1125. Personally I continue to hold the stock for the past 3 years when it used to quote at Rs 50.. The company recently came out with its sales number for July 2006 and the growth seems to continue unabated. The company hopes to grow its total area by 10 times to 30 million square feet by 2010 from the current 3.5 million square feet. Sales are also expected to grow on the same line.

 

Pantaloon Retail has maintained its aggressive growth stance for the month of July 2006.

 

Particulars

July 06

July 06

YoY

Value Retailing

140.62

84.92

65.58

Lifestyle Retaling

64.55

45.10

43.11

TOTAL

205.17

130.02

57.80

Same store sales

 

 

 

Value Retailing

105.62

84.64

24.78

Lifestyle Retaling

58.98

45.10

30.79

 

 

 

 

 

 

Market Capitalization

Rs 3718 crores

Revenues FY 07 (E)

Rs 4000 crores

EPS 2007 (E)

Rs 55

Revenues FY 08 (E)

Rs 8000 crores

EPS 2008 (E)

Rs 100

 

Recommendation: Pantaloon Retail remains a high risk high return stocks. Price wise if sales and profits grow multifold the stock price has to follow. While the stock might look cheap the RoE at 25% implies that the company is managing its capital well. The companyís foray into restaurants, Insurance, real estates spas, etc should help it continue with its growth unabated. In September the company is setting up 5 Big bazaars, 11 Food Bazaars and 8 Home store format stores.



Edited by basant - 26/Aug/2006 at 6:28pm
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Quote prashantmohta Replybullet Posted: 10/Aug/2006 at 12:23pm

Pantaloon emerges as clear winner.it is ahead of the pack in acquiring the real estate in big and small cities.well the management has very aggressive plans for the coming years.the biggest risk for pantaloon from HR perspective will be the timing of entry of foreign retailers but kishore biyani has already said that if walmarts come ,he will not be happy below 300% premium giving to them.pantaloon sales target in 2010 is 30000 cr.seems to be challenging.

prashantmohta,


Edited by basant - 10/Aug/2006 at 12:26pm
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Quote Ajith Replybullet Posted: 11/Aug/2006 at 3:47pm
 There is bound to be heavy competition among many players by 2011.Strong regeonal players may emerge who are very focussed and these may go national later after leaning the tricks of the trade.  Capital requirements will be large if you really want to go national and at present only Reliance Retail is comfortable.Pantaloon has the first mover advantage.Trent may surprise-LANDMARK is a hidden gem very popular in Chennai as I noted when I was there yesterday.In any case,the winners after 6 years will be rewarded with a high market cap/PE.
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Quote prashantmohta Replybullet Posted: 18/Aug/2006 at 11:06am
pantaloon has announced that they will raise funds for expansion,well m.r. basant i would like to request you  to show some lights to this context .they want to raise 3600 cr.by 2010,will it be possible for the co. to raise such amount as they cannot do placement as fii limit is already filled. sure they will have to come again and again with the right issues,will the co.s eps will be affected by equity dilution .co. has promissed to deliver 100% in sales but effectively growth in eps will not be same as sales growth because of equity dilution.
prashantmohta.


Edited by prashantmohta - 18/Aug/2006 at 11:35am
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Quote basant Replybullet Posted: 19/Aug/2006 at 12:17pm

You have raised an important point. People should be more concerned with EPS growth rather then sales growth. Mostly all of us take it as equal whereas it is not.

For companies that wish to grow at more then their RoE they can do so by only two options:

1) Take debt

2) Raise equity.

 

As shareholders of companies that are growing at more then the RoE we need to understand that a 80% plus growth is not possible unless the company goes in for a lot of debt (which is dangerous) or frequently dilutes equity. Normally since companies can raise debt at 11% the incremental RoCE should add to the bottom line but this strategy can cut you both ways.

 

I would not be much worried for an equity dilution as long as it happens through a Rights issue. But placements/ GDR dilute the shareholder's advantage.

 

But my sense is that pantaloon would do a stake sale in any of its subsidiaries combined with a mix of debt and equity.

 

For a company at a market cap of Rs 4000 crores it would be a tall order to raise Rs 3600 crore through equity alone.

 

Pantaloon needs about Rs 1800 crores for Working capital and another rs 1800 crore for long term expansion plans

 

Working capital needs are normally financed at 25% margin. That needs they need Rs 450 crores from here

Long term expansion funds can be distributed as 1.5:1 on debt equity that is they need Rs 720 crores as equity.

 

So the company needs about Rs 1170 crores (Rs 450 crores + Rs 720 crores)  and not Rs 3600 crores as some people would suggest.

Out of this they could sell of some stake in their home business etc and try to add up some amount from internal accruals.

 

All said and done Pantaloon remains a very high risk high reward investment. Either you can lose 50

% of your capital from here or make at least 8  to 10 times the money. Sales in 2010 are expected to be 15 times of sales in 2006.

 

Risk comes from not knowing what you are doing and in this case if you are mentally prepared for that eventuality I do not think it would matter much
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Quote basant Replybullet Posted: 19/Aug/2006 at 9:14pm

The company shall also make a huge AMC fees from its real estate innitiative Ksh*tij. By 2010 it plans to have a total of 40 million square feet under its real estate arm and 30 milkion square feet under its retailing ventures., The total is a staggering 70 million square feet.While Ksh*tij shall own and develop land the AMC fees shall be a fixed percentage plus profit sharing over a hurdle rate.

 
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Quote prashantmohta Replybullet Posted: 19/Aug/2006 at 10:48pm

Three years ago i went to mumbai and asked  analysts about indian retail story ,i found everybody is not very positive here in india inspite of big gurus had made huge money in retail stocks keeping for more than 20 years.and especially for pantaloon one of the popular name in ithe indian stock market (RSD) was negative for this co.everybody was worried for the management and for the net margin pressure.but if you go to walmarts site ,they are working with 5.5% margin and has not gained 10% market share now in the developed US market.

i am holding this stock and as far as the concerns over the management that they will deliver or not for their bumpy sales figure for 2010 is a different issue.what i can understand that co.is has well diversified its businessess thru (home solution,big bazar,food bazar etc).so those who doubts here must give second look.
 
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Quote basant Replybullet Posted: 19/Aug/2006 at 11:38pm
That is what makes a market. Your biggest gains come in the  stocks no one believs in. There is another logic to it. If everybody buys the stock with you there would be no body to buy it at a higher price and there would simmultaneously be a lot of sellers.
 
 
 
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