Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 23/Aug/2006 at 12:17pm
There are very strong rumours that Pantaloon may sell a part of its stake in its Home Town and other ventures. The company intends to use this money to fund its expansion plans.
Edited by basant - 23/Aug/2006 at 12:18pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 26/Aug/2006 at 5:55pm
Pantaloon Retail - Dissecting the numbers
The recent news about pantaloons intending to raise about Rs 960 crores carries some very hidden numbers. I have attempted to decipher and analyse them.
Pantaloons intends to place upto 24% of its stake in the subsidiaries to a group of Private equity/ Venture capitalists.The valuations assigned are:
Central
Rs 1000 crores
Home Solutions
Rs 1000 crores
Future Media
Rs 300 crores
Future Money bazaar
Rs 500 crores
Total value of these subsidiaries
Rs 2800 crores
WHile Home solutions is held 33% by Unitech the other companies are owed by Pantaloons. These work out to Rs 940 per share.
If we deduct Rs 940 from the current market price (Rs 1635) of Pantaloons we are getting the remaining businesses for Rs 735 per share or a market cap of Rs 1911 crores.
Pantaloons Retail – Home Solution – Money Bazaar – Central – Future Media
= Pantaloons + Big Bazaar + Food Bazaar + other new formats
Rs 1911 crores
The resultant value of Pantaloons + Big Bazaar + Food Bazaar does almost two times the sales of Trent and Shopper Stop combined and is valued at only 45% of the combined value of the two entities. there could be three reasons for this:
1) The market is already pricing in an execution risk in Pantaloons growth startegy
2) Pantaloon has some debt while Trent and Shopper stop are relatively lesser debt. Trent is cash positive really.
3) Pantaloons derives about half of its sale from Big Bazaar and Food Bazaar which are low margin businesses.
How ever the following points that the markets seem to be missing should also be noted
1) Pantaloon grows at twice the rate of growth of Shoppers stop and Trent - SO valuations should be significantly higher.
2) the contribution to sales of the businesses tio be hived off during Fy 06 was less then 25% of total sales.And it came from a mix of low and high margin items as well.
3) Now putting the same logic if 25% of Pantaloons revenue generating business was sold off at Rs 940 per share then the total business should be valued at four times Rs 940.
The stake sale of subsidiaries being done to ICICI ventures and other smart Private equity/VC's as always unlisted businesses always carry lower valuations.
Edited by basant - 26/Aug/2006 at 6:08pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 27/Aug/2006 at 8:34pm
Hi, That was a good view while I cannot disagree with the concerns the call that investors should take is very simple" Are you willing to believe in Biyani and his team".
Now I would give you two such instances in the past a) When reliance Infocom was launched Bharti traded at Rs 45 and quickly went down to Rs 20. It has come up 20 times from there At that time the market feared that Sunil Mittal would not be able to match up to Reliance. So it was very well discounted in the price. At about the same time Pantaloon traded at Rs 50 and the concerns were very very similar. Nobody thought that Biyani could execute his plans. But on the flip side the risk reward was in your favor and it is up 35 times from there.
I have a very different investing strategy . I like to take broad macro calls and then look for the leaders in that industry and also look at the risk reward ratio.
Now coming back to that article there are a few things which come to mind
1) The PE's are trailing and that is why they look so fearful
2) In a new sector there will always be execution risks. That is why a new sector throws up multibaggers.
3) Markets get affected by unknowns. At the current price and with an open discussion I feel all executions risks are factored into the price.
4) It is far easier for a Rs 500 crore company to close down then it is
for a Rs 4000 crore company. Pantaloon did a sale of Rs 500 crores in 2003 and it should do about Rs 4000 crore in 2007
5) If Pantaloon falters then the stock could come down to Rs 800 because at that price it would have a market cap of Rs 2000 crores. If it manages to pull itself out it could be up multifold.
6) Retailing will survive so you should hedge your bets with Trent; in case Pantaloon falters Trent shall be up so you would not lose much. In case both survive you could hit a jack pot. In case both falter then well... bad luck.
7) Globally the Private equity players have been smarter then the fund managers and the proposedplacement to a group of private equity players would mean that due diligence has been conducted.
8)If you can’t get a plan right with a team like this(see section at the bottom) then .....Most of these guys would not like to continue working in a company that cannot survive and mind you theya re very very smart people. You could argue that most of them could leave but till date only one senior person “Raghu Pillai” has left Pantaloon for reliance.Also reliance will also have a team of dedicated people working so it is the HR function that is more important rather then Biyani or Reliance.
9) Finally I do not think that we wil see a K-Mart in India before 2010 unless some one does something very stupid.In case a company wants to sell there will be plenty of buyers at a price. Remember how landmark was scooped up by Trent.So the losses on the downside is about what percentage of your investment you could lose rather the losing all your capital.
10) If you have seen the block deal segment Intra FII trades are donme at a premium of 10% - 20% to the market price.
11) Finally Pantaloon is for the very aggressive investor who knows his risks.
Sanjeev Gupta, MD, Indivision Capital Formerly, CEO, Coca Cola India
N Shridhar, CFO, Future Capital Formerly, CFO, Britannia
Atul Kapur, MD, Indivision Capital
Formerly, MD, Goldman Sachs Principal Strategies Group
Source Pantaloon website
Edited by basant - 27/Aug/2006 at 8:35am
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 27/Aug/2006 at 8:42am
I have tried to highlight only on the execution side of the project since that is the real risk everything else is a derivative of that. Pantaloon trades at a PE of 30 times Fy 07 and 18 times Fy 08, with an RoE of 25%.
Edited by basant - 27/Aug/2006 at 8:45am
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 28/Aug/2006 at 12:14pm
Piramid is one stock that i have been looking since it was listed bought it once but then sold it again. Piramid is a late mover and while their stores are doing extraordinarily well in Nagpur ask some one whom you know stays there they have gone wrong with their hub and spoke model (one large store and several smaller ones feeding it)concept and are presently reworking on that.
So if you are in the retail sector before you buy Piramid you should have an exposure to pantaloon and Trent.Once you have taken an exposure to these two then you could consider Piramid because at a market cap of about US $ 50 million you have almost nothing to lose.The management is also quite strong.
Once FDI is opened up global retailors will want to buy the biggest and the largest. Put yourself in Walmart's shoes.You would like to buy Pantaloon not even Trent.In 40 days their cash profit would equal the entire market cap of Pantaloons. Andat a price everything can be bought. We all live in a material world.
It is not like the software story where people buy only smaller companies since they are themselves medium scale by global standards. And do not buy a stock on take over news some stocks that investors have held on take over triggers and which have not materialised are
Federal bank
South Indian Bank.
Also with Pantaloon Biyani says that since they are getting into several areas they can also retrace themselves back in case some thing goes wrong in one or two formats. SO in that way several lateral expansio seems to help.
Edited by basant - 28/Aug/2006 at 12:21pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot delete your posts in this forum You cannot edit your posts in this forum You cannot create polls in this forum You cannot vote in polls in this forum
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
IP Logged
