Pantaloon retail - How I have managed to hold on from Rs 7(rights/split/dividend adjusted).
Manish:
You know I bought Pantaloon Retail at Rs 50. Today Rights adjusted I am getting Rs 1850 for that the journey between Rs 50 and Rs 1850 is listed below:
1) Since I did not have enough money or expertise to start something on my own I wanted to buy the right company in the high growth sectors. Retailing as a sector was poised to grow so the question was getting into the right company in the sector.
2) At that Pantaloon traded at a market cap of Rs 80 crores against a sale of Rs 450 crores and traded at a PE of 7 times so it was a case of value with growth.
3) In 2003 Kishore Biyani had declared that he would do a sale of Rs 1000 crore in 2005 and I believed in what he said. In fact I always believe in the management’s projection unless they have failed in their previous targets.
4) AT that time Trent sold for Rs 150 with Rs 60 on its balance sheet as cash, paid good dividend 2.5% yield and was backed by the Tata.
5) Pantaloon had an inventory problem analysts said that there could be inventory write downs. I figured that could be about Rs 8 to 10 crores so while the issue was significant the amount was not. The problem remains till date
6) I must confess that I was not aware that this stock could go that long this fast. I did write an article on value notes stating that this stock could go up 40 to 50 times but the time zone was 2010 and not 2006.
7) The Management was not considered honest and trust worthy but I had no option. The retailers could only be played through pantaloon and Trent. Moreover the blemishes on the management were more subjective in nature. I saw that Kishor Biyani had mortgaged his personal property to take a secured loan for the company. Thought that he could not do any thing wrong intentionally – showed seriousness of the promoter.
8) This is the most interesting of it: I used to stand outside the Pantaloon showroom for 30 minutes and count the number of people who walked out with Shopping bags from both Pantaloon and Westside .They are located adjacent to each other.
9) Whenever I used to take a Taxi, I used o tell the driver to take me to Westside. He showed ignorance then I would tell him to take me to pantaloon and he would immediately respond. I knew people were going to pantaloon more often then Westside.
10) I used to bite the head off the ladies in our family as to which store they shopped more from Pantaloon or Westside.
11) I used to get excited when I saw a Pantaloons bag being carried by any of the commuters and I often remarked to a friend that one day when we see this bag all around this stock could be at Rs 2000+
12) Was never worried about what happens Kolkata might not happen elsewhere. Rather I used to extract feedback from acquaintances in other cities.
Now these were the triggers for buying. How I managed to hold on is more interesting:
13) When ever I met an analyst he would tell me 3 different reasons as to why pantaloon should be sold. I panicked at 3 price levels
14) When it hit Rs 250, Rs 500 and Rs 1200. I panicked because I had never made that much money from one stock and the chance of losing what I had earned was one of the reasons to sell then anything else.
15) At each point I used to evaluate my down side and upside potential. For instance I thought that if Trent could double in 3 years and Pantaloon go down by 50% I would not look that stupid. I constantly evaluate my portfolio as a basket of stocks since it is a high risk high reward game.
16) Many times over the past three years the stock has got expensive but the sheer pace of growth is such that it kind of gets cheap a few months later. For this I must thank Fisher for his book “Common Stocks and Uncommon Profits”
17) For instance last month it traded at a PE of 20 times FY 07. Today after having recovered 50% from that price it trades at a pE of 30 times Fy 07.
18) I think once you have the downside levels in mind you can handle the situation much better.
19) I never looked for an ultimate target on pantaloon. That is because the company was constantly evolving. I was prepared to sell at any price if the signals were discomforting.
20) Even today I have no targets on pantaloon, just plan to take each year as it comes.
21) All through out I used to look at the market cap. The size of the opportunity is even today 300 times the market cap. In the multiplex business it is only 3 times the market cap. By the size of opportunity I mean the total sector sales for a particular year. For instance the pantaloon, Big Bazaar Food bazaar brand could be sold at a certain percentage of their market cap and also the roll out of stores will make it an ideal acquisition target.
22) There are talks of reliance getting into retail but then there are two ways to look at it.
a) The market is huge so it could absorb another 3 to 4 reliance
b) Try and see that if Pantaloon is marginalized the stock could come down to Rs 800 or Rs 1000 if they carry along at their pace then the upsides are open. So it is a question of risk & reward. I do not believe that we will have a Kmart in India before 2011.
23) Over the years the set up at Pantaloon has changed they had taken in a lot of new talent. People were leaving Rel Info and Bharti to join this company. I thought that may be these guys could not be foolish.
But there were several factors the biggest being the “Buy what you see” that made me buy and hold it the others were only supplementing.
PS: I exited Pantaloon Retail in Novemeber 2008 after making a 35 bagger!
Edited by basant - 26/Feb/2009 at 3:50pm