Sequential moderation in SSS growth May 16, 211 Gautam Duggad gautamduggad@plindia.com +91 22 66322233 Rating BUY Price Rs241 Target Price Rs332 Implied Upside 37.8% Sensex 18,531 (Prices as on May 13, 211) Trading data Market Cap. (Rs bn) 52.2 Shares o/s (m) 217.2 3M Avg. Daily value (Rs m) 143.5 Major shareholders Promoters 44.92% Foreign 24.11% Domestic Inst. 16.69% Public & Other 14.28% Stock Performance (%) 1M 6M 12M Absolute (14.7) (46.6) (38.7) Relative (8.8) (38.6) (46.) Price Performance (RIC: PART.BO, BB: PF IN) (Rs) 6 5 4 3 2 1 May 1 Jul 1 Source: Bloomberg Sep 1 Nov 1 Jan 11 Mar 11 May 11 In line results; ~1% SSS growth: Pantaloon Retail s (PF s) Q3FY11 results were broadly in line with our expectations, with Sales, EBITDA and PAT coming in at Rs28.1bn(up 18% YoY), Rs2.48bn(up 14%) and Rs55m (up 35%) as against our expectations of Rs28.8bn, Rs2.44bn and Rs496m. Same store growth for Lifestyle, Value and Home division was 1.2%, 1.3% and 9.1%, respectively. Impact of inflation and price hikes taken in apparel is clearly visible in the moderation in SSS growth for Lifestyle division which reported 21% SSS for H1FY11. During Q3, PF added.68m sq.ft of space, taking the total retail space to 14.85m sq.ft. For 9MFY11, space addition stands at 1.5m sq.ft and PF intends to add.8m sq.ft in Q4. Gross margins improve marginally: PF s gross margin improved 3bps YoY to 28.6%. EBITDA margin, however, declined 3bps to 8.8%, driven by 5bps expansion in other expenses. Management expects 16% improvement in average realisations in the Fashion segment post the price hikes taken in Q3FY11 which was necessitated by twin impact of rising cotton prices and imposition of excise duty on branded apparel. This should support margins in the near term. Interest costs remained flat sequentially. Core retail debt has remained flat sequentially at Rs38bn. Negatives in the price; BUY: After ~45% correction in the last 6 8 months, we believe that the current price factors in all the negatives (high leverage, investments in non retail businesses, sub optimal working capital management). Demand continues to remain healthy notwithstanding higher inflation and price hikes. Monetisation of stake in non retail businesses and positive noise from government on FDI in multi brand retail can act as key triggers for share price. We maintain BUY, with a SOTP based one year target price of Rs332. Our SOTP does not factor in the value from non retail businesses. Key financials (Y/e June) 21 211 212E 213E Revenues (Rs m) 89,261 115,922 141,359 165,353 Growth (%) 4.8 29.9 21.9 17. EBITDA (Rs m) 8,191 9,585 11,783 13,535 PAT (Rs m) 2,32 2,512 3,264 3,91 EPS (Rs) 11.2 11.6 14.6 17.4 Growth (%) 51.2 3.6 26.2 19.5 Net DPS (Rs) 1.4 1.5 1.9 2.3 Source: Company Data; PL Research Profitability & Valuation 21 211 212E 213E EBITDA margin (%) 9.2 8.3 8.3 8.2 RoE (%) 8.8 8.6 1.3 11.2 RoCE (%) 6.8 6.1 7.1 7.7 EV / sales (x) 1..9.7.6 EV / EBITDA (x) 11. 1.3 8.7 7.7 PE (x) 21.5 2.8 16.5 13.8 P / BV (x) 1.8 1.7 1.6 1.5 Net dividend yield (%).6.6.8.9 Source: Company Data; PL Research Q3FY11 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q3FY11 Result Overview (Rs m) Y/e June Q3FY11 Q3FY1 YoY gr. (%) Q2FY11 9MFY11 9MFY1 YoY gr. (%) Net revenues 28,119 23,96 17.6 27,586 81,519 62,576 3.3 Raw material costs 2,64 17,137 17.1 19,652 58,115 44,111 31.7 Employee costs 1,215 1,18 19.4 1,217 3,63 2,74 33.3 Other expense 4,361 3,578 21.9 4,334 12,812 9,79 32. Total operating expenditure 25,641 21,732 18. 25,22 74,53 56,524 31.9 EBITDA 2,479 2,174 14. 2,383 6,989 6,53 15.5 Depreciation 66 518 27.4 65 1,94 1,451 33.7 EBIT 1,819 1,656 9.9 1,733 5,49 4,62 9.7 Other income 34 16 113.3 52 167 87 92.1 PBIT 1,853 1,671 1.9 1,785 5,216 4,689 11.2 Interest 1,96 1,8 8.7 1,78 3,17 2,873 8.1 PBT 757 663 14.2 78 2,11 1,817 16.1 Tax 252 288 (12.7) 235 74 672 4.8 Core PAT 55 375 34.8 472 1,45 1,145 22.8 Extraordinary Items PAT 55 375 34.8 472 1,45 1,145 22.8 As % of Sales Raw material costs. 71.4 71.7 71.2 71.3 7.5 Employee costs. 4.3 4.3 4.4 4.4 4.3 Other expenses 15.5 15. 15.7 15.7 15.5 Total operating expenditure 91.2 9.9 91.4 91.4 9.3 EBITDA 8.8 9.1 8.6 8.6 9.7 PBT 2.7 2.8 2.6 2.6 2.9 PAT 1.8 1.6 1.7 1.7 1.8 Exhibit 2: Sequential moderation in same store sales growth 25 Value Lifestyle Home (RHS) 8 (%) 2 15 1 5 6 4 2 2 (%) 4 1QFY9 2QFY9 3QFY9 4QFY9 1QFY1 2QFY1 3QFY1 4QFY1 1QFY11 2QFY11 3QFY11 May 16, 211 2
Exhibit 3: Flat Gross and EBITDA margins for the quarter Gross margin EBITDA Margin (RHS) 31% 3% 3% 29% 29% 28% 28% 27% Q11 Q21 Q31 Q41 FY1 Q111 Q211 Q311 12.% 1.% 8.% 6.% 4.% 2.%.% Exhibit 4: Quarterly space addition (m sq. ft.) Format Q4FY9 Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Big Bazaar 6.3 6.88 6.36 6.63 6.88 7.2 7.38 7.62 Food Bazaar.4.47.46.48.47.48.48.52 Pantaloon 1.12 1.24 1.15 1.19 1.24 1.25 1.45 1.5 Central 1.61 2.18 2.1 2.19 2.18 2.2 2.36 2.52 ezone.44.48.49.49.48.53.53.54 Home Town.86.99.84.98.96 1.11 1.11 1.17 KB's Fair price.8.12.1.17.12.13.15.18 Others.8.89.49.5.89.65.71.79 Total 11.34 13.25 11.99 12.63 13.22 13.37 14.17 14.84 Exhibit 5: Store count details Format Q4FY9 Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Big Bazaar 112 132 12 125 132 136 143 148 Food Bazaar 43 53 52 54 53 55 54 56 Pantaloon 44 48 45 46 48 48 53 54 Central 17 25 22 25 25 27 29 3 ezone 34 36 37 37 36 42 43 44 Home Town 9 1 7 8 9 11 11 12 KB's Fair price 81 123 99 166 123 134 17 198 Others 129 164 128 125 164 15 15 179 Total 469 591 51 586 59 63 653 721 May 16, 211 3
Income Statement (Rs m) Net Revenue 89,261 115,922 141,359 165,353 Raw Material Expenses 63,56 82,536 1,789 118,227 Gross Profit 26,25 33,386 4,57 47,126 Employee Cost 3,94 5,117 6,24 7,299 Other Expenses 14,74 18,683 22,547 26,291 EBITDA 8,191 9,585 11,783 13,535 Depr. & Amortization 2,123 2,43 2,893 3,377 Net Interest 3,913 4,243 4,652 5,25 Other Income 728 837 633 689 Profit before Tax 2,883 3,749 4,871 5,822 Total Tax 582 1,237 1,67 1,921 Profit after Tax 2,32 2,512 3,264 3,91 Ex Od items / Min. Int. Adj. PAT 2,32 2,512 3,264 3,91 Avg. Shares O/S (m) 26.2 217.2 223.7 223.7 EPS (Rs.) 11.2 11.6 14.6 17.4 Cash Flow Abstract (Rs m) C/F from Operations 9,712 C/F from Investing (4,1) C/F from Financing 2,197 Inc. / Dec. in Cash 7,899 Opening Cash 2,25 2,865 Closing Cash 9,98 9,98 FCFF (5,436) (5,922) (988) (1,383) FCFE (498) (2,922) 1,512 617 Key Financial Metrics Growth Revenue (%) 4.8 29.9 21.9 17. EBITDA (%) 22.6 17. 22.9 14.9 PAT (%) 63.8 9.1 29.9 19.5 EPS (%) 51.2 3.6 26.2 19.5 Profitability EBITDA Margin (%) 9.2 8.3 8.3 8.2 PAT Margin (%) 2.6 2.2 2.3 2.4 RoCE (%) 6.8 6.1 7.1 7.7 RoE (%) 8.8 8.6 1.3 11.2 Balance Sheet Net Debt : Equity 1.5 1.6 1.5 1.4 Net Wrkng Cap. (days) 46 59 52 52 Valuation PER (x) 21.5 2.8 16.5 13.8 P / B (x) 1.8 1.7 1.6 1.5 EV / EBITDA (x) 11. 1.3 8.7 7.7 EV / Sales (x) 1..9.7.6 Earnings Quality Eff. Tax Rate 2.2 33. 33. 33. Other Inc / PBT 28.5 22.3 13. 11.8 Eff. Depr. Rate (%) 6.9 6.7 6.9 7. FCFE / PAT (21.7) (116.3) 46.3 15.8. Balance Sheet Abstract (Rs m) Shareholder's Funds 28,69 3,276 33,128 36,522 Total Debt 43,52 46,52 49,2 51,2 Other Liabilities 4,98 4,98 4,98 4,98 Total Liabilities 76,569 81,776 87,128 92,522 Net Fixed Assets 29,512 32,392 35,341 37,964 Goodwill Investments 9,98 9,98 9,98 9,98 Net Current Assets 37,959 4,286 42,69 45,46 Cash & Equivalents 2,865 (362) 738 848 Other Current Assets 55,63 63,3 69,378 76,69 Current Liabilities 2,58 22,652 27,427 31,997 Other Assets Total Assets 76,569 81,776 87,128 92,522 Quarterly Financials (Rs m) Y/e June Q4FY1 Q1FY11 Q2FY11 Q3FY11 Net Revenue 26,685 25,814 27,586 28,119 EBITDA 2,139 2,127 2,383 2,479 % of revenue 8. 8.2 8.6 8.8 Depr. & Amortization 673 63 65 66 Net Interest 1,4 933 1,78 1,96 Other Income 77 81 52 34 Profit before Tax 1,66 645 78 757 Total Tax (63) 197 235 252 Profit after Tax 1,259 448 472 55 Adj. PAT 1,259 448 472 55. May 16, 211 4
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 57, P. B. Marg, Worli, Mumbai 4 18, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 229 Rating Distribution of Research Coverage % of Total Coverage 6% 5% 4% 3% 2% 1% % 56.5% 26.1% 15.2% 2.2% Buy Accumulate Reduce Sell PL s Recommendation Nomenclature BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 1% absolute upside in 1 month Trading Sell : Over 1% absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document. For Clients / Recipients in United States of America: All materials are furnished courtesy of Direct Access Partners LLC ("DAP") and produced by Prabhudas Lilladher Pvt. Ltd. ("PLI"). This material is for informational purposes only and provided to Qualified and Accredited Investors. You are under no obligation to DAP or PLI for the information provided herein unless agreed to by all of the parties. Additionally, you are prohibited from using the information for any reason or purpose outside its intended use. Any questions should be directed to Gerard Visci at DAP at 212.85.8888. May 16, 211 5