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Q2 results to reverse Pantaloon Retail stock's weekly gain of 8.5%

The company is expected to continue to report lower single digit growth

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While Trent reported a rebound in profitability in September 2012 quarter (Q2) and Shoppers Stop management said it is witnessing improving consumer sentiments since October (after Dushhera pooja), now its time for Pantaloon Retail, India’s largest retailer, to give some good news. The company, which is expected to announce its Q2 results on Friday (November 9), has already seen its stock report a weekly gain 8.5%. But analysts expect muted performance.

The company is expected to continue to report lower single digit growth each in same store sales (range of 1-4%) and revenues (average Rs 3,069 crore, up 5.4%) due to weak consumer sentiments and extended sales season. However, operating profit margin is likely to improve marginally thanks to double digit growth (first time in last three quarters) of 12.5% in operating profit (Rs 284 crore).  

But improvement in operating is unlikely to trickle down and benefit investors or shareholders as the company’s gigantic debt burden (Rs 6,000 crore in core retail) is once again going to eat away the profits through significant jump in interest costs. Hence, the company is expected to report a single digit net profit (Rs 8.74 crore, down 73.5%) for the second consecutive quarter.

Though government’s approval of FDI in retail and recent attempts to raise funds (Aditya Birla Nuvo transaction, Furture Capital) will help in deleveraging, benefits in the form of reduction in interest costs is still some quarters away. Thus, new investors should enter only if the horizon is more than a year as valuation at 29 times FY13 estimated earnings (year ending June) is not cheap given the debt woes.


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