Accumulate Pantaloon Retail; target of Rs 225: PLilladher

“Overall consumer sentiment continues to remain low impacted by a sluggish macro environment, high inflation as well as moderation in discretionary consumer spending. As a consequence, discount season for Indian Retailers has started a fortnight ahead of its usual schedule. According to the management, consumer spending should pick up with the onset of festival season in August-September. SSS is expected to remain sluggish.”

“PF plans to add ~1.5m sq.ft of retail space annually for the next two years across its retail formats (excluding PF format stores). We are building in additional ~1m sq.ft space in our model to account for execution risks. As per management, once the current de-leveraging deals are done, focus would be back on expansion, with Food and Fashion being the core drivers. Deleveraging deals, which are already announced, will help reduce core retail debt by Rs22.5-23bn to Rs35bn. However, there are more such deals possible viz. a) Stake sale in Staples which can fetch ~Rs1.4bn (post tax) b) Stake sale in Insurance JV - ~Rs10bn and c) Divestments in Home Town and e-Zone, if realized, could aid the balance sheet further.”

“We don’t see near-term benefits for PF even if FDI in multi-brand retail goes through. Given the fractious political environment (principal opposition party against the proposed reform) and the underlying conditionalities (back end investments etc.), it will be a while before any deal with overseas retailer is worked out. Rather, GST will be more beneficial as it will lead to efficiencies in supply chain and savings of ~50bps in operating costs. We maintain our ‘Accumulate’ rating on the stock and look for improvement in same-store growth metrics before getting more constructive,” says Prabhudas Lilladher research report.

FIIs holding more than 30% in Indian cos

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