Pantaloon: Fewer shoppers?

Pantaloon has ended the year to June 2008 with stand-alone sales of Rs 5,050 crore — up 56 per cent. However, revenues for the June quarter were up just 35 per cent.

A huge increase in gross margins during the June quarter — possibly the result of the retailer increasing inventories ahead of new store launches and a mega-sale in August — helped push up the operating margins too, to 10.2 per cent.

Consolidated sales were up 68 per cent at Rs 5840 crore, though the firm posted a loss of Rs 63 crore. Pantaloon has changed its inventory policy and as a result has had to take a write off of Rs 75 crore — the loss (net of tax) has been adjusted against the reserves and surplus.

Pantaloon operates across several formats hoping to cash in on a larger share of the consumer’s wallet. Through its subsidiaries, it has a presence across real estate, logistics, media and advertising and consumer finance. The company has been adding space at a brisk pace and now occupies nearly 10 million sq ft across formats.

However, same store sales both in the value and lifestyle segments have slowed down over the last two years to around 10-12 per cent levels, partly due to some cannibalisation and also because of increasing competition.

Besides, operating costs have increased sharply over the past year, though of late rentals have started coming off. While Pantaloon has built considerable scale, with consumer spending likely to taper off, revenues could be harder to come by over the next year or so.

The retailer is expected to end FY09 with consolidated revenues of Rs 7,500 crore crore and a net profit of close to Rs 150 crore. High interest costs will keep the earnings per share under pressure allowing it to grow just marginally over the Rs 8.4 posted in FY08. With the current losses in subsidiaries at around Rs 125 crore and the insurance businesses too not profitable yet, analysts value the firm — on a sum of parts basis — at Rs 280 per share.