Pantaloon: Few shoppers

Pantaloon’s same store sales (sss) for February were up 4 per cent and 5 per cent y-o-y for lifestyle and value retailing, respectively.

Those are not terribly exciting numbers but at least there hasn’t been a contraction in sales, which is probably why the stock has bounced back 15 per cent from its four-year low of Rs 107 that it hit earlier this week. Even at these beaten-down prices, the stock, at Rs 123, trades at 17 times estimated 2008-09 earnings (year ending June) and 14 times estimated 2009-10 earnings.

The valuations factor in flat net profits for the current year and a bounce back next year on a lower base. The low confidence in retail stocks arises from the continuing flow of bad news from the space. According to a report, Bharti Retail has already started closing shops; group chairman Sunil Mittal is believed to have said that it was necessary to close outlets that were non-viable.

Vishal Retail, which has around 3 million sq ft of space too is believed to be closing a few more stores. Thanks tohigher interest and  depreciation costs, Vishal’s net profit fell 85 per cent in the December 2008 quarter, a difficult time when almost all retailers  saw same store sales coming off.

Business may have been better in the past couple of months, but  brokerage Macquarie expects a weaker economy to result in a growth in sss for value retailing of just  8 per cent and for lifestyle retailing of 7 per cent in 2009-10. That would mean weaker cash flows, which together with the lower availability of credit, would force companies to scale back expansion plans.

Pantaloon too, is believed to be looking to add just around 2-2.5 million sq ft in the next couple of years, against a planned addition of 4 million sq feet. That might not be such a bad idea because the company’s total debt is estimated to be close to Rs 3,000 crore and it will be paying out over Rs 200 crore as interest this year.