Shares of Pantaloon Retail, the largest listed retailer in the country, have gained nearly 18 per cent in the past three trading sessions, as two recent deals eased investors’ concerns about its heavy debt burden.
On Wednesday, the Kishore Biyani-led firm’s shares rose 7.9 per cent, or Rs 11.95 to Rs 163.15, extending its winning streak. Pantaloon’s financial services affiliate Future Capital Holdings (FCH) had announced on Monday that Pantaloon and its unit Future Value Retail were selling 53.7 per cent stake in FCH to global private equity major Warbug Pincus. The deal was valued at around Rs 560 crore, or Rs 162 a share.
Pantaloon shares had risen 17.5 per cent in the last three trading sessions, since Monday. The Future Capital stock, which closed almost flat at Rs 153.55 on Wednesday, had gained 12 per cent since the deal was announced on Monday. The deal with Warbug is expected to give relief to Pantaloon, which had been battling the mounting debt on its books.
“Warbug’s equity infusion of Rs 100 crore will be used to retire the core retail debt of Pantaloon, which stood at Rs 5,800 crore. After the deal, the consolidated debt will stand reduced by Rs 3,700 crore, which is Future Capital’s debt as on March 31, 2012,” said Gautam Duggad, research analyst at Prabhudas Lilladher, an equity brokerage, which has retained an ‘accumulate’ rating on the stock. Pantaloon had consolidated debt of over Rs 7,800 crore, as on June 31, 2011.
Stake sale in FCH, coupled with the demerger of the Pantaloons format to Aditya Birla Nuvo (which is expected to reduce its debt by Rs 1,600 crore) and the equity dilution to Bennett, Coleman and Co, will help the company reduce its core retail debt by Rs 2,200 crore, down to Rs 3,600 crore. Potential de-leveraging exercises, such as a put option in the Staples joint venture and divestment of stake in the insurance joint ventures, are further expected to help the company, analysts say.
Duggad of Prabhudas Lilladher expects Pantaloon to make interest cost saving of Rs 70 crore due to the recent deals.
Though debt reduction will help the company, as it pays about 60 per cent of operating profit as interest, analysts see some concerns on the operations front. “Slowing same-stores sales growth and piling inventory continue to remain a cause of concern,” said Bharat Chhoda and Dhvani Modi, analysts at ICICI Direct.com which has a ‘hold’ rating on the stock.