Biyani slows expansion plans

Kishore Biyani, the owner of India's largest retailer Future Group, is slowing his expansion plans with an attempt to conserve cash and help his group's flagship company Pantaloon Retail earn positive cash flows from its operations, according to company sources.

Biyani, who was targeting a retail space of 30 million square feet by financial year 2011, now expects to have the space by FY13.

"The plan may be delayed by at least two years. We will not be able to expand the way we used to do in the past due to the current economic conditions,'' a top executive of the company said. Biyani declined to comment.

Pantaloon Retail, which houses the Future Group's main formats such as Big Bazaar, Pantaloons, Food Bazaar and Central, had plans for a total space of 14.69 million sq ft by financial year 2009 and 19.25 million by FY10, according to analysts tracking the company. Now, Pantaloon Retail is expected to end its ongoing financial year, which ends on June 30, with a total space of 12 million square feet.
 

PANTING PERIOD
	FY08	FY09
Total debt (In Rs cr)	2,200	3,000
Debt to equity ratio	1.19:1	1.4: 1
Total space (in mn sq ft)	8	12
Source: Analysts’ estimate

The company finished the financial year 2008 with a total space of 8 million sq ft. Analysts said the company has almost halved its expansion plans for FY09 and FY10 at 2.5 million square feet a year from the earlier projection of 4 million sq feet a year.

Analysts cited the high leverage positions and rising debt to equity ratios for the slower expansion of retailers. ''Across the board expansion plans are being relooked because of the capital scarcity and catchment reassessment. Given high debt levels and almost dormant equity market, the capital for growth has become scarce,'' said a report from Edelweiss Securities.

Pantaloon's total debt is estimated to rise Rs 3,000 crore by the end of the current financial year from Rs 2,200 crore it had at the end of last year. Similarly, its debt to equity (DE) ratio is expected to rise to 1.4:1 from 1.19:1 last year. Similarly, the Rahejas-owned Shoppers Stop's debt equity ratio also moved up from 1:1 and Vishal Retail has DE ratio of 2.6:1, limiting their capacity to borrow further, analysts said.

In an earlier interview, Biyani had told Business Standard that his group may miss its three-year revenue target of Rs 30,000 crore by at least six months due to the poor economic conditions and falling sales and will fall short by at least 1 million square feet of its target to add 4 million square feet of retail space by the end of this financial year.

Analysts also attributed Pantaloon's negative cash flows from the operations and fall in same store growth for the slower expansion.

"The company is generating negative cash flows and store growth has declined in December. All the retailers are relooking at profitability at the store level," said an analyst with a multi-national brokerage who did not wish to be quoted.

Pantaloon Retail earned a negative cash flow from its operating activity last financial year though the gap narrowed than the previous year. The retailer's cash flow from operating activity was negative at Rs 19.21 crore in FY08 compared to a negative Rs 271.94 crore a year earlier, according to the company's balance sheet.

Pantaloon Retail's same-store sales in December in the value retail segment, led by Big Bazaar and Food Bazaar, fell 4 per cent, followed by lifestyle retail segment, which dropped 14 per cent and home retail 10 per cent. All the major retailers have gone slow on the expansion plans and either shifting or closing down their unprofitable stores to prevent mounting losses as the economy slows, putting lesser money in the hands of consumers.

If Pantaloon added 0.3 million sq ft of space in the December quarter of the current financial year compared to 0.9 million it added in the corresponding quarter last year, New Delhi-based Vishal Retail added only 0.2 million sq ft of space in the just-concluded quarter compared to 0.5 million sq ft it added in the December quarter of the last financial year. However, Shoppers Stop added the same amount of space in the December quarter of this year compared to last year's corresponding quarter.