ICICIdirect Pantaloons Retail Coverage

8/2/2019 ICICIdirect Pantaloons Retail Coverage

1/36

1 | P a g e

Analysts Name

Bharat [email protected] [email protected] [email protected]

Sales & EPS trend

0

2000

4000

6000

8000

10000

12000

14000

FY08 FY09 FY10E FY11E FY12E

0

5

10

15

20

25

Sales (Rs. Crore) (LHS) Diluted EPS (Rs.) Stock Metrics

Bloomberg Code PF IN

Reuters Code PART.BOFace Value (Rs) 2

Promoter's Holding 49%

Market Cap (Rs Cr) 6658

52 week H/L 371/105

Sensex 16983

Average Volumes 182358 Comparative return metrics

3M 6M 12M

Pantaloon Retail 13.2 13.4 69.4

Shoppers Stop 33.6 78.2 90

Trent 52.8 61.5 223.6

Titan 9.1 14.0 62.6Vishal Retail 3.4 -29.4 -22.9 Price Trend (Rs)

Target

Price

Absolute

Buy

0

100

200

300

400

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Aug-09

Oct-09

December 8, 2009 | Retail

nitiating Coverage

Pantaloon Retail India (PANRET)

Size mattersPantaloon Retail, the leading retailer of India, is expected to see a two-old rise in retail space to reach 17.8 million sq ft by FY12E from 9.6

million sq ft in FY09. Catering to 60% of the wallet share, the company is

n a sweet spot to leverage its massive retail space under operation.

PRILs dominance in the value retail segment capitalises on the attractive

demographic profile of the country. Its business realignment would create

a pure retail play enhancing the value of its shareholders. We are

nitiating coverage on the stock with a STRONG BUY rating.

Aggressive space rollout to spur revenue growthOn a standalone basis, the retail space under operation is expected toreach 17.8 million sq ft in FY12E from 9.6 million sq ft in FY09. We

expect the total revenue to grow at a CAGR of 25.3% driven by spaceexpansion (22.6%CAGR) and higher revenue psf (1.9% CAGR).

Restructuring to create a pure retail playPRIL is restructuring its entire business to hive off non-retailbusinesses and create a pure retail play for its shareholders. Valueunlocking in non-retail businesses would generate cash for expansionof retail businesses easing pressure of raising debt.

Profitable growth the focal pointThe profitability of the company is expected to improve, going

forward, due to higher share of the lifestyle segment and private

labels, cost reduction measures, economies of scale andimplementation of better technology systems. The operating profit

margin and net profit margin is expected to increase to 11% and 3%

in FY12E from 10.5% and 2.2% in FY09, respectively.

ValuationsWe are positive on the business model of the company and believe the

focus on profitable growth by the management would create value for

shareholders. We value the company on an SOTP basis at Rs 9758.4

crore translating into Rs 425 per share. The CMP of Rs 350 per share

does not even cover the core retail value of the company of Rs 370 per

share making it an attractive investment. At the target price of Rs 425,

the stock is trading at 29.2x and 22.2x its FY11E and FY12E earnings,

respectively, providing a potential upside of 21.4%.

Current PriceRs. 350

Target PriceRs. 425

Potential upside21.4 %

Time Frame12-15 months

STRONG BUY

xhibit 1:Key FinancialsYear to June 30 FY08 FY09 FY10E FY11E FY12E

Net Profit 126.0 140.6 271.3 284.1 373.2

Adj. Net Profit 125.9 140.6 206.3 284.1 373.2

hares in issue (crore) 15.9 17.4 19.0 19.5 19.5

iluted EPS (Rs) 6.5 7.2 13.9 14.6 19.1

/E (Adj.)(x) 44.3 43.4 28.2 24.1 18.3

rice/Book (x) 3.2 2.8 2.3 2.1 1.9

V/EBIDTA 16.5 13.1 11.2 9.5 8.1

oNW (%) 8.6 6.8 10.4 9.1 10.7

oCE (%) 11.8 11.7 12.0 13.1 14.3 ource: Company, ICICIdirect.com Research


2/36

2 | P a g e

Company Background

Pantaloon Retail India (PRIL), the flagship company of the Future

Group, is Indias leading retailer operating multiple formats in the

value and lifestyle segment of the retail sector. It operatesapproximately 9.6 million sq ft of retail space with over 1000 stores

across 73 cities in the country. The leading formats of the company

are Pantaloons (department store), Big Bazaar (hypermarket), Food

Bazaar (supermarket) and Central (seamless mall). Hometown is the

large size format of the company in the home furnishing segment,

operated through Home Solutions Retail. PRIL is a one-stop solution

provider for services in the consumption sector including logistics

(3PL services), media (OOH and retail destinations), insurance (JV with

Generali) and consumer finance (future money card) among others.

Exhibit 2:Business StructurePantaloon Retail India

Subsidiaries

Retail and allied services

Standalone

Core Retailing

Joint Venture

Specialty Retail

Lifestyle Value

Pantaloons46 stores

Central

10 stores

Big Bazaar117 stores

Food Bazaar

38 standalone stores

Brand Factory

8 stores

Home Solutions Retail

(66.9% stake)

Retailing home products

Future Capital Holdings

(54.8% stake)

Advisory & Consumer Finance

Future Logistics

(94.2% stake)

3PL & 4PL services

Future Media

(84.2% stake)

Creation of media properties

Future Bazaar India

(99.74% stake)

E-Tailing

Future Generali India Insurance Co.

(25.5% stake)

Staples Future Office Products

(37.50% stake)

Staples

Talwalkar Pantaloon Fitness Pvt

(50% stake)

Health and Beauty

Future Axiom

(49% stake)

Distribution of mobile handsets

Future Generali India Life Insurance

Co. (25.5% stake)

Pantaloon Future Ventures

(100% stake)

Future Agrovet

(96.2% stake)

Future Brands

(76.3% stake)

Source: Company, ICICIdirect.com Research

Shareholding pattern (Q1FY10)

% Holding

Promoters 49

Institutional Investors 34

Other Investors 10

Public 6 Promoter & Institutional holding trend (%)

46.5 46.5 48.8 48.8

35.6 34.3 32.8 34.3

0

10

20

30

40

50

60

Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10Promoters Institutional


3/36

3 | P a g e

Investment Rationale

Aggressive expansion to fuel growthOrganised retail to grow at 25% CAGR

Retailing in India is highly fragmented and the organised retail segment is ata nascent stage. India has the highest density of retail outlets in the world.According to KSA Technopak estimates, the retail industry is expected togrow from US$410 billion in 2008 to US$755 billion in 2018P, a CAGR of6.3% over the period. During this period, the penetration of organised retailis estimated to increase from 4.4% in 2008 to 22.5% in 2018P.Consequently, the organised retail segment is expected to grow fromUS$18 billion in 2008 to US$170 billion in 2018, a CAGR of 25%.

Exhibit 3:Rising penetration of organised retail

280

410

535

755

4.4

13.6

22.5

2.90

100

200

300

400

500

600

700

800

2003 2008 2013P 2018P

US$Bn

0

5

10

15

20

25

%

Retail (LHS) Penetration (RHS)

Source: KSA Technopak, ICICIdirect.com Research

PRIL retail space to grow at 22.6%CAGR

Organised retail was at a very nascent stage when PRIL entered thebusiness in 1997. To create a leadership position in the sector and gain fromfirst mover advantage, it expanded aggressively over the past five years toincrease its retail space from 1 million sq ft in FY04 to 9.6 million sq ft inFY09, a CAGR of 75%. Even after such a massive expansion, we believePRIL will be able to expand further as the retail pie is increasing with risingpenetration of organised retail. We expect the retail space of PRIL to reach17.8 million sq ft in FY12E from 9.6 million sq ft in FY09, a CAGR of 22.6%.

Exhibit 4:Retail space to ~ double in next 3 years

2.85.1

7.99.6

12.214.7

17.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

FY06 FY07 FY08 FY09 FY10E FY11E FY12E

Mnsqft


Organised retail penetration will

reach 22.5% in 2018 from 4.4%

in 2008


4/36

4 | P a g e

This growth has been driven by the massive expansion undertaken in theBig Bazaar format. Though the contribution of Big Bazaar in the total spaceis expected to decline to 58.7% in FY12E from 64.1% in FY09, it would be akey growth driver for the company due to its large size and increasedpreference of consumers for value retail formats. The company alsolaunched the seamless mall format, Central, with an average store size of120,000 sq ft. The share of Central in the total space is expected to increase

sharply from 13.2% in FY09 to 19.3% in FY12E on the back of aggressiveexpansion driven by best profitability delivered by this format (EBITDAmargin ~23% in FY09).

Exhibit 5:Format-wise space till FY12E

0.7

1.0

1.2

1.4

1.5

1.7

3.1

5.0

6.2

7.4

8.7

10.4

0.2

0.3

0.3

0.3

0.4

0.4

2.0

2.7

3.4

0.7

1.0

1.2

0.2

0.3

0.4

0.5

0.6

1.3

0.9

0.6

0.4

0.3

0.3 0.2

0 2 4 6 8 10 12 14 16 18

FY07

FY08

FY09

FY10E

FY11E

FY12E

Mn sq ft

Pantaloon Big Bazaar Food Bazaar Central Brand Factory Others


Exhibit 6:Format-wise contribution to total space

12.3 11.2 10.5 9.7

64.1 61.1 59.0 58.7

2.82.5 2.4 2.2

13.2 16.3 18.4 19.3

4.2 5.6 6.5 6.93.4 3.3 3.3 3.1

0

20

40

60

80

100

FY09 FY10E FY11E FY12E

%

Pantaloon Big Bazaar Food Bazaar Central Brand Factory Others


Value retail to retain major shareValue retail a preferred format in India

Value retailing includes stores offering quality merchandise at a discountedprice. Indias major population currently is and in future is expected to be inthe middle class income group. This group, by nature, prefers valueretailing formats like hypermarkets, supermarkets, discount andconvenience stores. Since value retail stores serve as a one-stop shop forcustomers, it is more convenient, wallet friendly and time saving for thisworking group to purchase products at these stores. In a survey conductedby KPMG, respondents chose value retailing formats like supermarkets,hypermarkets, discount stores, etc to have the most potential for growth inthe Indian market.

Exhibit 7:Increasing preference for value retail formats

45

45

36

27

18

9

9

0 10 20 30 40 50

Speciality

Supermarkets

Hypermarkets

Discount

Department Stores

Convenience

E-tailingrespondents could choose

more than 1 format

Source: KPMG India Retail Survey 2005, ICICIdirect.com Research


5/36

5 | P a g e

Big Bazaar, Food Bazaar to maintain its dominance

Since value retail is a preferred format in India, PRIL focused on formatscatering to this segment. It launched Big Bazaar and Food Bazaar andexpanded the formats aggressively in major eight cities of the country withfavourable demographics namely Ahmedabad, Bangalore, Hyderabad,Kolkata, Mumbai, Pune, Delhi NCR and Chennai. The two formats increasedtheir share over the years to reach 71.5% of retail sales in FY09. However,

since these formats have already reached a critical mass in the major cities,we believe the expansion of these formats is likely to be lower than theoverall space growth of the company. We expect the retail space under BigBazaar and Food Bazaar to reach 10.4 million sq ft and Food Bazaar to reach0.4 million sq ft by FY12E. This equates to a CAGR of 19% for Big Bazaarand 13% for Food Bazaar over FY09-FY12E.

Exhibit 8:Retail space under Big Bazaar and Food Bazaar formats

3.145.04

6.19

7.44

8.69

10.44

0.18 0.30 0.27 0.30 0.35 0.40

0

2

4

6

8

10

12

FY07 FY08 FY09 FY10E FY11E FY12E

Mnsqft

Big Bazaar Food Bazaar


Despite this lower growth in value retail formats compared to the total retailspace growth of 22.6% for the company, we expect Big Bazaar and Food

Bazaar to maintain its dominance at 61.6% of retail sales in FY12E. Weexpect the retail sales of Big Bazaar to increase from Rs 4189.5 crore inFY09 to Rs. 7293.8 crore in FY12E, CAGR of 20.3%, driven by area addition(19% CAGR) and average revenue psf (1% CAGR). Major Food Bazaarstores are opened as cut-ins in the large format stores namely, Big Bazaar orCentral. Hence, we expect minimal expansion in Food Bazaar on astandalone store basis. Consequently, we expect revenue from Food Bazaarto grow at 13.1% CAGR reaching Rs 457.1 crore in FY12E from Rs 316.3crore, driven by 13.2% CAGR in space expansion.

Exhibit 9:Big Bazaar format to grow at CAGR of 20.3%

3271.9

4189.5

6029.1

7777.8 7405.0 7331.0 7477.6 7627.1

4994.6

7293.865.0

66.4

59.7

58.0

62.6

0

1000

2000

3000

4000

5000

6000

7000

8000

9000


52

54

56

58

60

62

64

66

68

%

Sales (Rs Crore) Avg Sales psf (Rs)

Share in total retail sales (RHS)


Exhibit 10:Food Bazaar format to grow at CAGR of 13.1%

314.9 316.3 345.7 395.1 457.1

12358 12077 11975 12095 12216

6.3

5.04.3

3.93.6

0

2000

4000

6000

8000

10000

12000

14000


0

1

2

3

4

5

6

7

%

Sales (Rs Crore) Avg Sales psf (Rs)

Share in total retail sales (RHS)


Note: Food Bazaar stores do not include cut-ins in other larger stores

Big Bazaar and Food Bazaar

with largest space under

operations would be key drivers

of growth


6/36

6 | P a g e

Increasing focus on lifestyle storesHigher EBITDA margin in lifestyle stores to cushion margin pressure

While value retailing provides volumes on account of better bargains andlower ticket size, lifestyle stores provide a better shopping experience andbranded quality merchandise. Consequently, operating margin in the

lifestyle segment is higher than that in value retail segment. Hence, EBITDAmargin in the lifestyle segment (Pantaloons, Central, Brand Factory andother formats) ranges between 2023% while that of the value segmentranges below 15%. The company is increasing its focus on lifestyle storesto create a balance between value and lifestyle retailing, thereby providingcushion to its operating margin.

Exhibit 11:Format-wise EBITDA margin (FY09)

19.0

10.7

6.7

22.6

21.3

0 5 10 15 20 25

Pantaloon

Big Bazaar

Food Bazaar

Central

Brand Factory

%


Consequently the share of the lifestyle segment in total retail sales isexpected to rise from 28.5% in FY09 to 38.4% in FY12E. The share ofPantaloons is expected to decline modestly whereas that of Central isexpected to increase drastically. Due to lease model, the margin in theCentral format is highest at 22.6% in FY09, attracting major investments inthis format. The share of this format in total retail sales is expected to reach19.5% in FY12E from 10.9% in FY09. Brand Factory is another lifestyleformat, which is expected to gain further share in total retail sales at 6.1% inFY12E from 4% in FY09.

Exhibit 12:Rise in share of lifestyle segment

33.2 30.7 28.8 28.533.1 36.4

38.4

66.8 69.3 71.2 71.5 66.9 63.6 61.6

0%

20%

40%

60%

80%

100%


Lifestyle stores Value Segment


Central, with its highest EBITDA

margin, is expected to grow

fastest at 52.7% CAGR


7/36

7 | P a g e

Exhibit 13:Share of Central and Brand Factory formats in total retail sales

10.7

19.5

0.0

11.312.012.0

13.015.514.0

17.7

10.9

13.3

10.9

14.816.6

2.44.0 4.0 4.4

5.4 6.1

0

2

4

6

8

10

12

14

16

18

20


%

Pantaloon Central Brand Factory


Rising share of private labels to improve marginsPrivate labels are the in-house brands created by a company. These labelsare priced lower than national brands while having better margins. Over adecades presence, PRIL has created many private label brands that are soldunder various formats like Pantaloons, Big Bazaar, Food Bazaar, HomeTown, Brand Factory, E-zone, etc. The share of private labels is different forvarious segments operated by the company. Its share in the fashion andelectronics segment is higher at 80% and 20%, respectively, while that infood and general merchandise is lower at 5-8%. According to themanagement, the share of private labels in the food and electronics

segment is growing by approximately 100 bps annually.

Exhibit 14:Private label brandsProduct Category Private Label Brand Gross Margin range

Apparel 45- 60%

Men John Miller, F-Factor,Bare, Lombard

Women Honey, Annabelle, Mix and Match

Uni sex Bare, RIG, Ajile, Akkriti

Kids and Infants Chalk, Bare 714

Consumer durables 15 - 30%

Air Conditioners Koryo,SENSI

Micro wave Ovens and Multimedia Home speakers Koryo

Food 20 - 40%

Snacks, Cola and soft drinks Tasty treat

Packaged tea Fresh and Pure

Comodity food like Poha Ekta

Packaged Pulses and Rice Premium Harvest

Home Care / General Merchandise 25 - 45%

Aluminum Foil and Baby Diapers Caremate

Detergent Bars and scrubbers Cleanmate

Kitchenware Dream Kitchen

Bed and Bath Linen Dream Bed and Bath


New launches and aggressive pricing in private labels is expected to

increase its share in total sales of the specified categories. This furtherallows the company to negotiate better margins and terms with mainstreamnational brand players. Thus, apart from margin creation from private labels,better terms with national brands result in increased bargaining power for

Central to gainmaximum share,going forward

PRIL is planning to expand

the private label basket by

launching new brands and

including more categories,

thereby improving margins


8/36

8 | P a g e

the company. Currently, private labels contribute 20% to the topline of thecompany, which according to the management is expected to reach 25%,going forward. With the increase in share of private labels, we expect thegross margin to improve by 80 bps to reach 30.9% in FY12E from 30.1% inFY09.

Exhibit 15:Improving gross margin psf

2330 2189 2190 2283 2371

30.1

30.3

30.7

30.9

30.4

2050

2100

2150

2200

2250

2300

2350

2400


Rspsf

30

30

30

30

30

31

31

31

%

Gross Margin psf (LHS) Gross Margin (%) (RHS)


Focus on food a big opportunity

Food and grocery is the largest vertical in the retail industry with 65%market share. However, its penetration into organised retail is only 1%.According to the National Sample Survey Organisation (NSSO) 60th round,54% of the rural and 42% of the urban population expenditure was on food.This explains the tremendous growth opportunity for this vertical in the

organised segment.

Exhibit 16:Food to retain its highest sharePaticulars

Market Size

US$ bn 2006

% Share

2006

Market Size

US$ bn (2010)

% Growth

(2005-10)

% Share

(2010)

Market Size

US$ bn (2015)

% Growth

(2010-2015)

% Share

2015

Food, Beverages and Tobacco 195.0 65.0 256.0 7.0 60.0 342.0 6.0 54.0

Personal Care 15.0 5.0 23.0 11.0 5.0 35.0 9.0 5.0

Apparel 21.0 7.0 33.0 11.0 8.0 50.0 9.0 8.0

Footwear 5.0 2.0 7.0 11.0 2.0 11.0 9.0 2.0

Furnishings 4.0 1.0 7.0 15.0 2.0 12.0 12.0 2.0

IT & Consumer Durables 14.0 5.0 24.0 15.0 6.0 43.0 12.0 7.0

Furniture 9.0 3.0 16.0 15.0 4.0 28.0 12.0 4.0

Jewellery & Watches 15.0 5.0 24.0 12.0 6.0 37.0 9.0 6.0

Medical Care & Health Services 8.0 3.0 12.0 12.0 3.0 21.0 12.0 3.0

Recreation 2.0 0.6 3.0 17.0 1.0 7.0 15.0 1.0

Others 12.0 4.0 23.0 18.0 5.0 53.0 18.0 8.0

Total 300.0 100.0 427.0 9.0 100.0 637.0 8.4 100.0

Source: Images F&R Research 2007, ICICIdirect.com Research

After assessing the opportunity in the fast moving consumer goodsbusiness (food and personal care), the company has been launching privatelabels in this category. It has launched Fresh and Pure (food and staples),Cleanmate (home care), Caremate (personal care products), Tasty Treat(food, snacks, cola and soft drinks) and Premium Harvest (packaged pulsesand rice). The company plans to launch more private labels in the FMCGspace to generate better margins from the segment. According to the

management, the gross margin in the private labels of food segment is inthe range of 2040% whereas the company garners 17% margin at thecategory level.

Launch of private labels in

FMCG space to improve

margins


9/36

9 | P a g e

Home retailing to gain tractionWith the rising middle income group, increasing disposable income andhigher proportion of population in the working segment (Refer Annexure IV:Growth drivers of retail sector), the spend in home improvement andconsumer durables is likely to increase. Though many retailers haveventured into this category through formats like Next (Videocon), HomeStop (Shoppers Stop), Spaces (Welspun), Vijay Sales, Croma (Tata), there

lies huge opportunity in this segment due to lower penetration of organisedretail.

Exhibit 17:Low penetration in home and consumer durable segment

632

136

501

8.1

24.6

5.0

0

100

200

300

400

500

600

700

Soft furnishings Household appliances Home dcor & furnishing

RsBn

0

5

10

15

20

25

30

%

Retail sales (LHS) Penetration (RHS)

Source: CRISIL Research, ICICIdirect.com Research

PRIL caters to home and consumer durables segment through itssubsidiary, Home Solutions Retail Ltd, which operates various formats likeHome Town, E-Zone (Consumer durables), Home Bazaar, Furniture Bazaarand Electronics Bazaar. The retail space under operation for HSRL stood at1.8 million sq ft at the end of FY09. This is expected to reach 3.2 million sq ftby FY12E, CAGR of 22.3%. We expect the revenue of HSRL to reach Rs2192.8 crore in FY12E from Rs 1070.7 crore in FY09, CAGR of 27%. We alsoexpect a revival in revenue psf of HSRL on account of better consumersentiments as signified from improvement in same store sales of homesegment.

Exhibit 18:Area under operations in HSRL

0.5

1.31.8

2.12.6

3.2

0

1

2

3

4


Mnsqft


Exhibit 19:Improving revenue psf

306.0

904.7 1070.71441.4

1760.92192.8

5868.16727.2

6048.76766.8 6746.3 6767.6

0

2000

4000

6000

8000


Revenue (Rs Crore) Revenue psf (Rs)


Favourable demographics and

lower penetration to improve

penetration of organised home

retailing


10/36

1 0 | P a g e

Better technology implementation to improve productivityIn FY09, the company implemented various technology systems to improveits efficiency and productivity. It took initiatives to improve the inventorymanagement system and supply chain management system to increase theshelf turnover.

Improvement in inventory management systemsPRIL undertook various measures to improve its inventory managementsystem and supply chain management system. It deployed next generationGreenplum enterprise database to support the vast data analytics for itsmulti-format nationwide chain of stores. It now has real time data fromstores on the sales of all its products enabling better planning andpromotions, thereby improving its margin.

Better supply chain logisticsThe company consolidated its warehouse space to seven large distributioncentres. This resulted in better economies of scale on account of shared

warehouse capex and overheads. This also increases the order fulfilmenttime and rate, enabling better availability of products in stores. Theautomatic replenishment system (ARS) allows timely product availability ofall fast moving items at stores, lower obsolescence and lower markdownsand facilitates stock aging analysis. These initiatives increase the shelf spaceand shelf turnover resulting in better sales and margins.

With these measures, the management expects the inventory per squarefoot to reach Rs 1600 psf over the next two to three years. We believe this istoo aggressive an assumption and have, hence, been conservative on thesame. We expect the inventory psf to reach Rs 1736 psf by FY12E from Rs1853 psf in FY09, an improvement of 2% CAGR over FY09-12E period.

Exhibit 20:Improving inventory psf

18171853

1815

17731736

1650

1700

1750

1800

1850

1900


Rspersqft


Restructuring to create pure retail playPre-restructuring: From a retailer to one-stop solutions providerOver FY05-FY09, PRIL moved beyond retailing to provide services toconsumers and other corporate clients. It forayed into a host of retailservices through subsidiaries and joint ventures to cocoon itself from theintensifying competition. The massive space with the company turning intoincreasing footfalls has resulted in an added advantage to the company.Taking advantage of the existing approximately 200 million footfalls in its

Implementation of better

technology systems to increase

shelf turnover and improve

productivity


11/36

1 1 | P a g e

stores, the company established services like logistics (Future Logistics), outof home media (Future Media), distribution of financial services products(Future Capital Holdings) and venture into life and non-life insuranceproducts (Future Generali). It also ventured into non-core retail services likedevelopment of brands (Future brands), IT services (Future KnowledgeServices), retail education (Future Learning and Development), mallmanagement services (Future Mall Management), among others.

Exhibit 21:Pre-restructured organisation

Pantaloon Retail India

Subsidiaries

Retail and allied services

Standalone

Core Retailing

Joint Venture

Specialty Retail

Lifestyle Value

Pantaloons

Central

Big Bazaar

Food Bazaar

Brand Factory

Home Solutions Retail

(66.9% stake)

Retailing home products

Future Capital Holdings

(54.8% stake)

Advisory & Consumer Finance

Future Logistics

(94.2% stake)

3PL & 4PL services

Future Media

(84.2% stake)

Creation of media properties

Future Bazaar India

(99.74% stake)

E-Tailing

Future Brands

(76.3% stake)

Future Generali India Insurance Co.

(25.5% stake)

Staples Future Office Products

(37.50% stake)

Staples

Talwalkar Pantaloon Fitness Pvt

(50% stake)

Health and Beauty

Future Axiom

(49% stake)

Distribution of mobile handsets

Future Generali India Life InsuranceCo. (25.5% stake)

Pantaloon Future Ventures

(100% stake)

Future Agrovet

(96.2% stake)


Note: Orange coloured boxes are still with Pantaloon Retail play

Grey coloured boxes refer to non-retail business hived off or transferred to financial services holding company

Post-restructuring: Creation of a pure retail playPantaloon Retail is restructuring the entire business into retail and non-retailventures. It is dividing its businesses into three parts, namely, retail,financial services and other support businesses. The motive behind such amove is to unlock shareholder value in non-retail businesses and

consolidate Pantaloon Retail as a pure retail play.


12/36

1 2 | P a g e

Exhibit 22:Post restructured organisation

PANTALOON RETAIL INDIA

Pure Retail Playmoicnjiohjinnnnnnnnnnnnnn

mmmmmmmmmmmmmmmmNon Retail Business

Financial Services

Hived

off

Direct participation by PRILshareholders

Listing

Already Sold

- Future Brands

- Future Knowledge Services

- Futre Learning and

Development

Potential to hive off

- Future Mall Management

- CIG Infrastructure

-Future Capital Holdings

-Future Generali India Insurance

-Future Generali India Life Insurance

-Pantaloon Future Ventures

Brick and Mortar

formats like Central,

Pantaloons, Brand

Factory, other smaller

formats (incl. JV)

Standalone

Subsidiaries

-Home Solutions Retail

-Future Logistics

-Future Media

-Futurebazaar India

Big Bazaar and Food

Bazaar to be hived off as

a wholly owned

subsidiary


Consequently, the company is planning to undergo the followingrestructuring process:

It is planning to unlock value and consolidate its investments inthe financial services business of the company, which includesholdings in Future Capital Holdings Ltd and in the insurance jointventure companies. Pantaloon Future Ventures is also expectedto be classified under financial services by the company. PRILplans to create a holding company for the financial servicesbusiness and would hold a 26% stake in the holding company.The remaining 74% stake is expected to be distributed in theproportion of current shareholding pattern

It plans to transfer its investments in Future Brands and its assetsheld by non-retail businesses held through its wholly-ownedsubsidiaries, namely, Future Knowledge Services and FutureLearning and Development to PFH Entertainment Ltd (a promotercompany) for a total value of Rs 190 crore. We have taken theprofit of Rs 100 crore resulting from this transaction in ourestimates as extraordinary income. The company has a few othersubsidiaries like Future Mall Management and CIG Infrastructure,where the potential for further value unlocking lies.

It also plans to hive-off its value retail business, which includesBig Bazaar, Food Bazaar and other related formats, into a wholly-owned subsidiary.


13/36

1 3 | P a g e

Pantaloon Retail holds a number of subsidiaries (Refer Annexure forsubsidiary details). The restructuring process is progressing in full swingand, as a result, there is little clarity on the movement of varioussubsidiaries within the group. We await further clarity from the managementon the detailed restructuring process and the restructured organisation.However, as the restructuring process is on a step by step basis, things willbe captured in our estimates on formal announcements by the company.

Capex funding requirement easesWe expect a space addition of 8.1 million sq ft over FY10-12E. This additionwould entail an additional capex requirement of Rs 4052 crore includingstore capex and working capital requirement. We assume store capexrequirement at Rs 2800 per sq ft and working capital requirement of Rs 2250per sq ft for the expected expansion. For part-funding the capex, thecompany expanded its equity by 9.1% to raise Rs 500 crore via qualifiedinstitutional placement (QIP). With the sale of non-retail businesses, itharvested another Rs 190 crore for capex requirements. Hence, a totalamount of Rs 690 crore has been raised for capex funding. Consequently,the additional debt funding requirement would reduce to some extent. Weexpect the company to raise additional Rs 1600 crore via debt and theremaining requirement to be fulfilled by the balance amount of warrantpayment and internal accruals.

QIP placement of Rs 500 crore

and sale of subsidiaries for Rs

190 crore have eased the

funding requirement of the

company


14/36


15/36

1 5 | P a g e

Working capital managementRetail companies, by nature, are working capital intensive. They have tokeep high working capital to make available the required products tocustomers. Hence, working capital management is a crucial part of the retailbusiness. We expect the number of working capital days of the company todecline to 55.2 in FY12E from 63.6 days in FY09, due to better supply chainmanagement through Future Logistics Solutions and better inventorymanagement.

Exhibit 24:Working capital days

55.2

60.2

54.8

61.2

63.6 63.5

50

52

54

56

58

60

62

64

66


N

o.

ofDays

.

Source: Company, ICICIdirect.com ResearchHowever, the sensitivity of working capital management to our EPSestimates remains high. A 5% increase in working capital requirement

would result in 2% lower EPS estimate and vice-versa. Hence, if thecompany is unable bring in the efficiencies as taken in our working capitalestimates; our EPS estimates will be vulnerable to downgrades.

Exhibit 25:Working capital sensitivity to EPS estimatesParticulars FY10E FY11E FY12E

Core Working Capital 2774.0 3281.0 3984.0

EPS 14.2 14.5 19.0

5% Increase 2912.7 3445.05 4183.2

Revised EPS 13.9 14.1 18.6

% Chg -1.8 -2.3 -2.1

5% Decrease 2635.3 3117.0 3784.8

Revised EPS 14.4 14.8 19.4

% Chg 1.8 2.3 2.1

Source: ICICIdirect.com Research

High debt to equityThe company reported debt of Rs 2850 crore at the end of FY09, whichtranslates into a debt to equity ratio of 1.25x. However, to addapproximately 2.5 million sq ft each year, the company will need additionalfunds for capex and working capital requirements. Hence, it raised Rs 500crore through qualified institutional placement resulting in lower debt toequity ratio of 1.06x in FY10E. According to the management, this is enoughfor the next 12-18 months of equity requirement. The retail business runs onwafer thin margins and, hence, internal accruals will not be sufficient to fund

expansion plans. Consequently, we have assumed that the additionalamount of fund raising would be through debt and, therefore, the debt toequity ratio is expected to rise to 1.13x in FY11E and 1.22x in FY12E.

Working capital sensitivity for

the retailer is high with 5%

increase in working capital

resulting in 2% decline in EPS


16/36

1 6 | P a g e

Exhibit 26:Rising debt to equity levels

1.19

1.22

1.13

1.06

1.25

1.0

1.1

1.1

1.2

1.2

1.3

1.3


times


Comparing PRIL with its Asian peers, we conclude that it is on the higherside of the curve. Its Asian peers have far lower debt to equity as can beseen from the data ahead. Thus, PRIL would have to raise more equity andserve capex requirement on internal accruals for its further expansion,where we are conservative and have assumed increased debt funding.

Exhibit 27:Rising debt to equity levels1.09

0.13

1.02

0.59

0.50

0.04

1.06

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Shinsegae Co

Ltd

Lotte

Shopping Co

Ltd

Parkson

Retail Group

Ltd

Lifestyle

International

Holdings Ltd

Golden Eagle

Retail Group

Ltd

Giordano

International

Ltd

Pantaloon

Retail

times

Source: Bloomberg, ICICIdirect.com Research


17/36

1 7 | P a g e

Financials

Impressive sales growthThe total revenue of the company has shown impressive CAGR of 50.3%

over FY06-FY09 to reach Rs 6341.7 crore in FY09 from Rs 1052.8 crore inFY05. This is on account of aggressive expansion in space from 2.03 millionsq ft in FY05 to 9.65 million sq ft in FY09, 47.7% CAGR. This growth wasdriven by aggressive expansion of the Big Bazaar format. We expect thetotal revenue of the company to double to reach Rs 12473.6 crore in FY12Efrom Rs 6341.7 crore in FY09 backed by 22.6% CAGR in retail space from9.65 million sq ft in FY09 to 17.8 million sq ft in FY12E. We also expect animprovement of 1.9% CAGR in revenue psf over FY09-12E on account ofhigher share of lifestyle segment. We believe Big Bazaar will maintain itsdominance in total revenue even post FY12E due to the high share of spacein total space within the company.

Exhibit 28:Revenue to grow at 25.3% CAGR

3236.7

5048.9

6341.7

7890.2

10006.1

12473.6

7654.4 7263.1 7231.1 7439.8 7677.5

8415.9

0

2000

4000

6000

8000

10000

12000

14000


Revenue (Rs Crore) Revenue psf (Rs)


Improving SSS growth on back of better consumer sentiments

The growth in same store sales (SSS) is an indicator of performance of aretail store. This has been a positive for a major part of the last two yearssignifying location advantages for PRIL stores. After the financial turmoil in2008, consumer sentiments have become positive from June 2009. Thegrowth in lifestyle and value retail has been similar since January 2009signifying that consumers are looking for bargain steals as well as going forpurchases, which they had postponed earlier. However, the home retailingsegment is still a laggard and traction is expected to begin soon. With bettereconomic stability and increasing job certainty, we expect an improvementin the same store sales growth of the company, going forward. This wouldtranslate into higher sales and better margin for the company.

Improving SSS would lead to

better shelf turnover, thereby

increasing sales and profitability

Sales growth to be driven by

22.6% CAGR of retail space and

1.9% CAGR of average revenue

psf


18/36

1 8 | P a g e

Exhibit 29:SSS growth showing traction

-40.00

-20.00

0.00

20.00

40.00

60.00

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

%

Value Retailing Life Style Retailing Home Retailing


Uptrend in margin to continueOver FY05-FY07, the margins of the company were under pressure mainlyon account of higher expenses like cost of goods sold, employee cost andrental cost. The operating profit margin of the company decreased to 6.66%in FY07 from 8.6% in FY05. The net profit margin also declined due to risingdepreciation and interest cost resulting from aggressive capital expenditure.The adjusted net profit (adjusted for onetime transactions and otherincome) margin declined from 3.4% in FY05 to 0.9% in FY07.

However, with economies of scale rising from increased space underoperations, cost reduction methods and adoption of better inventorymanagement and supply chain management systems, the operating profit

margin of the company improved to 10.5% in FY09 from 6.7% in FY07.Adjusted net profit margin declined to 2.2% in FY09 from 2.5% in FY08.Going forward, we expect the company to maintain its margins wherein theoperating profit margin is expected to be 11% in FY12E and adjusted netprofit margin is expected to be 3.0% in the same period. This is on back ofexpected rise in share of lifestyle stores, better economies of scale,increasing share of private labels and continued implementation of costreduction measures. Adjusted PAT margin is expected to rise on account oflower interest expense resulting from reduced funding of capex from debt.

Exhibit 30:Improving cost structure

69.6 69.9 69.7 69.3 69.1

5.4 4.3 4.2 4.3 4.46.5 6.4 6.5 6.5 6.49.4 8.9 8.9 9.1 9.1

0

10

20

30

40

50

60

70

80


%ofnetrevenue

Cost of goods sold Emp Exp Rentals SG&A


Exhibit 31:Margins rise higher11.0

3.0

10.910.710.5

9.1

2.5 2.82.62.2

0

2

4

6

8

10

12


%

Operat ing Margin Adj. Net Profi t Margin


Margins to improve on account

of cost reduction measures and

rising share of lifestyle segment

and private labels


19/36

1 9 | P a g e

Better coverage ratiosOver FY05-FY09, PRIL undertook aggressive expansion of Rs 2093 crore incapex and Rs 1626 crore in working capital to take advantage of first moverin the retail sector. This growth was financed both through debt and equity.However, due to intense competition in the sunrise retail sector, theprofitability of the company declined resulting in lower interest coverageratio every year. The interest coverage ratio declined to 1.7x in FY09 from3.5x in FY06. Nevertheless, we expect a gradual improvement in interestcoverage ratio due to part financing of expansion from equity (QIP andwarrants) and increased profitability, going forward. We expect interestcoverage ratio to reach 2.1x in FY12E from 1.7x in FY09.

Exhibit 32:Interest coverage ratio to increase3.5

3.0

2.1

1.71.9

2.0 2.1

0

1

1

2

2

3

3

4

4

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

times


Improving return ratiosWe expect a gradual improvement in return ratios of PRIL on account ofimproved profitability, efficiency and productivity arising from bettertechnology and cost reduction measures. The RoCE is expected to reach14.3% in FY12E from 11.7% in FY09 while RoE is expected to reach 10.7%in FY12E from 6.8% in FY09.

Exhibit 33:Return ratios turn better

10.7

14.3

6.8

10.39.08.6

13.1

11.911.711.8

0

2

4

6

8

10

1214

16


%

RONW ROCE


Coverage ratio to improve onequity funding, unlocking value

in non-retail businesses and

better profitability


20/36

2 0 | P a g e

Operating cash flow turning positive in FY09In FY09, the cash flow from operations (CFO) turned positive, which is amajor trigger to indicate improving fundamentals of the company. Despiterising debt and higher working capital requirements, the company reportedCFO of Rs 206.11 crore in FY09. We believe this should be sustainable for

the company on account of improved profitability and efficiency. We expectCFO to stand at Rs 777.2 crore in FY12E despite aggressive expansion,going ahead due to PRILs continuous expected focus on profitable growth.

Exhibit 34:Positive CFO

-271.9

206.1

397.2

651.2

780.2

-89.8-19.2

-400

-200

0

200

400

600

800

1000


RsCrore

55.9% CAGR


Positive CFO would ease the

funding requirement of the

company


21/36

2 1 | P a g e

Valuations

Pantaloon Retail is a one-stop retail services solution provider. It caters toapproximately 60% of the wallet share of the consumer. It has ready consumersfor its retail related services at present due to the massive retail space underoperations providing access to above 200 million consumers and variouscorporate clients for allied services. We believe the company will be able tocreate synergies in various businesses and are positive on the business model ofthe company.

We have valued the company on a sum-of-the-parts basis to reflect the value ofvarious subsidiaries that the company owns. The core retail businesses of PRILstandalone have been valued through DCF to take into account the efficienciesarising out of better utilisation of resources. We have valued Home SolutionsRetail on relative valuation multiple as the company is still not making profits atthe EBITDA level. We value Future Capital Holdings on a 30% discount to marketcapitalisation, as it is a listed entity. We have not included the valuation of other

subsidiaries in our target price as all of them are at nascent stage. We believe it istoo early to value them and, hence, would wait for these subsidiaries to gainsome traction before including them in our target price. Accordingly, we havearrived at a target price of Rs 425 per share giving a potential upside of 21.4%.We are initiating coverage with a STRONG BUY rating.

Exhibit 35:Sum-of-the-parts of PRILName of the company Basis of Valuation

Total Value

(Rs Crore) PRIL share Per Share Value

Standalone Value DCF 7226.73 7226.73 370.2

Subsidiaries

Home Solutions Retail (66.9% stake) Market Cap / Sales 1096.40 733.49 26.3

Future Capital (54.8% stake) Market Capitalisation 1435.28 550.57 28.2Total 9758.40 8510.79 424.7


Note: Per Share value has been calculated on fully diluted equity of PRIL

PRIL standalone valued at Rs 370 per sharePRIL, on a standalone basis, includes Pantaloons, Big Bazaar, Food Bazaar,Central, Brand Factory, Fashion Station, aLL, Depot and other small formats. Wevalue it on a DCF basis to take into account the store roll out assumptions and

improving profitability, going forward, resulting from better sales mix, improvingefficiency and productivity, easing rental and other costs.

We have valued the company on a three stage DCF basis, wherein explicitassumptions have been made till FY19. Thereafter, we have assumed a terminalgrowth of 5% for the company. With these assumptions, we have arrived at avalue of Rs 7226.7 crore translating into per share value of Rs 370 on a fullydiluted equity. We expect the fully diluted equity of the company to reach Rs 39crore after adjusting for QIP issue and warrants issued to promoters.


22/36

2 2 | P a g e

Exhibit 36:SensitivityTerminal Growth Rate

Wacc 4.0% 4.5% 5.0% 5.5% 6.0%

10.9% 421 460 505 559 624

11.4% 363 395 432 475 527

11.9% 313 340 370 406 447

12.4% 269 292 317 347 380

12.9% 231 250 272 296 324 Source: ICICIdirect.com Research

Exhibit 37:Basic AssumptionsAssumptions

Risk free rate 7.6%

Beta 1.2

Equity risk premium 5.1%

WACC 11.9%

Terminal Growth Rate 5.0%


At the CMP of Rs 350, the stock is available at 28.2x and 24.1x its FY10E andFY11E adjusted earnings, which we believe is very attractive. The company hasbetter growth visibility as compared to its peers and is also expandingaggressively to increase its reach within the country.

Exhibit 38:Global Peer ValuationsP/BV(x) EV/EBITDA(x) Mcap/Sales(x) EBITDA Margin(%) PAT Margin(%) ROE(%) ROCE(%)

2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011

Wal-Mart Stores Inc* 15.1 13.9 2.9 2.6 7.9 7.4 0.5 0.5 7.6 7.7 3.4 3.5 20.1 19.9 8.8 9.1

Kohl's Corp* 17.5 15.4 2.3 2.1 7.9 6.8 1.0 0.9 13.0 13.8 5.5 5.9 13.3 14.7 11.2 14.7

JC Penney Co Inc* 26.4 18.1 1.3 1.3 6.4 5.3 0.4 0.4 6.5 7.5 1.4 2.1 5.6 7.7 2.0 3.0

Costco Wholesale Corp@ 20.7 18.4 2.3 2.1 8.8 7.9 0.3 0.3 3.6 3.8 1.7 1.7 11.8 12.2 5.5 5.9

Target Corp* 14.7 13.0 2.2 1.9 7.7 6.8 0.5 0.5 9.9 10.3 3.6 3.9 15.7 15.2 5.1 5.8

Gap Inc* 14.5 13.3 3.1 3.0 5.7 5.2 1.1 1.1 15.9 16.5 7.3 7.7 22.0 21.2 22.2 21.0

Carrefour SA# 11.9 9.8 1.5 1.4 5.0 4.5 0.2 0.2 5.2 5.5 1.4 1.7 12.0 14.2 2.6 3.5

Next PLC* 11.9 11.5 10.7 7.0 7.2 6.6 1.2 1.2 18.5 18.6 10.0 10.2 111.5 71.1 18.9 18.3

Marks & Spencer Grp PLC** 14.4 13.6 2.8 2.5 7.3 6.8 0.7 5.1 12.6 12.9 4.8 4.8 20.5 18.9 7.0 7.2

Tesco PLC$ 14.6 13.2 2.4 2.2 9.0 8.2 0.6 0.5 8.3 8.4 4.0 4.1 16.9 17.0 12.0 12.1

Metro AG# 19.3 16.6 2.6 2.5 6.1 5.6 0.2 0.2 4.9 5.1 1.2 1.3 13.2 14.8 1.8 2.8

Shinsegae Co Ltd# 17.8 15.6 2.4 2.1 12.0 10.9 1.0 1.0 12.0 12.2 5.8 6.2 14.3 14.3 5.8 6.2

Lotte Shopping Co Ltd# 14.8 13.5 1.1 1.0 9.5 8.8 0.9 0.9 10.9 11.1 6.2 6.3 7.9 8.1 5.2 5.3

Parkson Retail Group Ltd# 39.0 31.7 9.6 8.2 24.3 19.1 9.7 8.1 40.6 41.7 25.2 25.7 26.2 28.0 10.2 11.7

Lifestyle International Hldgs# 25.0 22.1 4.1 3.8 17.4 15.1 6.2 5.7 36.8 38.0 25.3 25.6 17.3 17.0 8.5 9.1

Golden Eagle Retail Group# 49.3 36.2 15.5 12.3 28.9 22.9 14.6 11.7 48.0 48.4 27.5 32.6 30.5 38.3 12.2 17.1

Giordano International Ltd# 20.5 14.1 1.8 1.7 9.5 6.6 0.8 0.7 6.7 8.8 3.8 5.2 8.4 12.5 5.8 12.5

Average 20.4 17.1 4.0 3.4 10.6 9.1 2.4 2.3 15.4 15.9 8.1 8.7 21.6 20.3 8.5 9.7

P/E(x)


Note: * - January year ending, # - December year ending, @ - August Year ending, ** - March Year Ending, $ - February year ending

Exhibit 39:Indian Peer ValuationP/BV(x) EV/EBITDA(x) Mcap/Sales(x) EBITDA Margin(%) PAT Margin(%) ROE(%) ROCE(%)

2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011

Pantaloon Retail India^ 28.2 24.1 2.3 2.1 11.2 9.5 0.8 0.7 10.7 10.9 3.4 2.8 10.4 9.1 12.0 13.1

Shopper's Stop 66.5 29.9 5.0 4.4 18.5 12.6 0.8 0.7 5.3 6.6 1.1 2.3 7.1 11.7 1.8 4.4

Titan Industries 29.2 23.6 8.5 6.8 17.6 14.4 1.4 1.2 7.8 8.0 4.6 4.9 32.2 31.5 10.4 10.3

P/E(x)


Note: ^ June year ending and EPS adjusted for extraordinary items

HSRL valued at Rs 26HSRL includes Home Town, Home Bazaar, E-zone, Electronics, Collection I andFurniture Bazaar. It is a loss making company at present and the managementexpects the company to be profitable at the EBITDA level in FY10. Hence, we

value the company on market capitalisation to sales basis to take into account thegrowth prospects due to its expansion in the near future. We have valued it at adiscount to global peers as it is loss making even at the EBITDA level. We value


23/36

2 3 | P a g e

HSRL at 0.5x its FY12E sales of Rs 2192.8 crore, to arrive at a total value of Rs1096.4 crore, translating into PRILs 66.9% stake at Rs 26 per share, after aholding discount of 30%.

Exhibit 40:Global Peer Valuation (Home Category)P/BV(x) EV/EBITDA(x) Mcap/Sales(x) EBITDA Margin(%) PAT Margin(%) ROE(%) ROCE(%)

2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011

Bed Bath & Beyond Inc$ 20.6 18.0 2.9 2.7 9.3 8.6 1.4 1.3 13.1 13.2 6.6 7.0 14.8 13.8 10.7 10.5

Home Retail Group PLC$ 20.4 17.5 0.9 0.9 6.8 6.2 0.5 0.5 6.1 6.5 2.2 2.6 4.7 5.5 3.6 3.3

Home Depot Inc* 18.4 16.9 2.5 2.4 8.7 8.1 0.7 0.7 9.8 10.2 3.9 4.2 13.8 14.2 6.4 6.9

Kingfisher PLC* 16.5 14.3 1.1 1.1 7.9 7.1 0.5 0.5 7.7 8.1 3.2 3.5 6.4 7.1 3.4 3.8

Average 19.0 16.7 1.8 1.8 8.2 7.5 0.8 0.7 9.2 9.5 4.0 4.3 9.9 10.2 6.0 6.1

P/E(x)


$ - February year ending, * - January year ending

Future Capital valued at Rs 28Since Future Capital Holdings is a listed entity, we have valued it on a marketcapitalisation basis. At the current market price of Rs 227, we have arrived at a

market capitalisation of Rs 1435 crore translating PRILs 54.8% stake into pershare value of Rs 28 on a fully diluted equity.


24/36

2 4 | P a g e

FINANCIALS

P&L Statement (Rs Crore) Key ratios (Industry specific cost) (%)

FY08 FY09 FY10E FY11E FY12E FY08 FY09 FY10E FY11E FY12E

Sales 5048.9 6341.7 7890.2 10006.1 12473.6 Cost of goods sold 69.6 69.9 69.7 69.3 69.1

Growth (%) 56.0 25.6 24.4 26.8 24.7 Emp Exp 5.4 4.3 4.2 4.3 4.4Op. Expenditure 4588.4 5673.3 7042.6 8917.4 11105.0 Rentals 6.5 6.4 6.5 6.5 6.4

EBITDA 460.5 668.4 847.6 1088.6 1368.6 SG&A 9.4 8.9 8.9 9.1 9.1

Growth (%) 113.6 45.1 26.8 28.4 25.7 Average cost of debt 8.5 11.2 11.3 11.5 11.5

Other Income 3.8 6.1 6.5 6.9 7.9 Effective Tax rate 35.6 35.0 46.0 35.0 35.0

Depreciation 83.4 140.1 181.8 232.2 292.5 Profitability ratios (%)

EBIT 380.9 534.4 672.3 863.4 1084.0 EBITDA Margin 9.1 10.5 10.7 10.9 11.0

Interest 185.3 318.2 354.9 426.3 509.9 PAT Margin 2.5 2.2 3.4 2.8 3.0

PBT 195.6 216.2 317.4 437.1 574.1 Adj. PAT Margin 2.5 2.2 2.6 2.8 3.0

Growth (%) 8.1 10.5 46.8 37.7 31.4 Per share data (Rs)

Tax 69.7 75.7 146.1 153.0 200.9 Revenue per share 316.9 363.6 414.8 512.5 638.9

Extraordinary Item 0.0 0.0 100.0 0.0 0.0 EV per share 480.0 507.2 504.6 530.8 572.0

Rep. PAT before MI 125.9 140.6 271.3 284.1 373.2 Book Value 110.0 126.8 152.5 167.1 185.4

Minority interest (MI) 0.0 0.0 0.0 0.0 0.0 Cash per share 7.6 6.3 10.9 9.6 5.7

Rep. PAT after MI 125.9 140.6 271.3 284.1 373.2 EPS 7.9 8.1 14.3 14.6 19.1

Adjustments 0.0 0.0 65.0 0.0 0.0 EPS (Adj.) 7.9 8.1 12.4 14.6 19.1

Adj. Net Profit 125.9 140.6 206.3 284.1 373.2 Cash EPS 13.1 16.1 23.8 26.4 34.1

Growth (%) 5.0 11.6 46.8 37.7 31.4 DPS 0.0 0.7 0.7 0.7 0.7

Balance Sheet (Rs crore) Key ratios (%)

FY08 FY09 FY10E FY11E FY12E Return ratios FY08 FY09 FY10E FY11E FY12E

Equity Capital Class A 31.9 34.9 38.0 39.0 39.0 RoNW 6.8 6.2 7.0 8.6 10.2

Equity Capital Class B 0.0 3.2 3.2 3.2 3.2 ROCE 11.8 10.2 10.7 11.8 12.8

Share Warrants 63.3 22.9 22.9 0.0 0.0 ROIC 17.7 16.2 13.8 16.4 16.2Reserves & Surplus 1751.5 2211.5 2901.7 3261.3 3619.5 Financial health ratio

Shareholder's Fund 1846.6 2272.4 2965.8 3303.5 3661.7 Operating CF (Rs Cr) -19.2 206.1 397.2 651.2 780.2

Minority Interest 0.0 0.0 0.0 0.0 0.0 FCF (Rs Cr) -904.1 -382.3 -411.5 -192.6 -225.2

Secured Loans 1991.8 2525.5 2725.9 3167.8 3731.1 Cap. Emp. (Rs Cr) 4106.2 5238.9 6290.3 7288.4 8495.9

Unsecured Loans 200.0 324.9 422.3 549.0 713.7 Debt to equity (x) 1.2 1.3 1.1 1.1 1.2

Deferred Tax Liability 67.8 116.1 176.3 268.1 389.4 Debt to cap. emp. (x) 0.5 0.5 0.5 0.5 0.5

Source of Funds 4743.9 6150.8 7362.3 8543.4 9945.9 Interest Coverage (x) 1.1 0.7 0.9 1.0 1.1

Gross Block 1368.8 1876.5 2584.4 3297.7 4151.0 Debt to EBITDA (x) 4.8 4.3 3.7 3.4 3.2

Less: Acc. Depreciation 170.6 307.7 489.4 721.6 1014.1 DuPont ratio analysis

Net Block 1198.2 1568.8 2095.0 2576.1 3136.9 PAT/PBT 0.6 0.7 0.7 0.7 0.7

Capital WIP 330.6 345.2 350.0 380.0 400.0 PBT/EBIT 0.5 0.4 0.5 0.5 0.5

Net Fixed Assets 1528.8 1914.0 2445.0 2956.1 3536.9 EBIT/Net sales 0.1 0.1 0.1 0.1 0.1

Intangible asset 0.0 0.0 0.0 0.0 0.0 Net Sales/ Tot. Asset 0.9 0.9 0.9 1.0 1.1

Investments 586.5 954.0 864.0 864.0 864.0 Total Asset/ NW 2.9 3.1 2.8 3.0 3.1

Cash 121.1 109.3 207.3 187.3 110.9

Trade Receivables 113.2 177.3 200.0 240.0 286.0

Loans & Advances/Other 964.5 1208.3 1436.0 1686.0 2063.0

Inventory 1429.8 1787.8 2210.0 2610.0 3085.0

Total Current Asset 2628.6 3282.7 4053.3 4723.3 5544.9

Current Liab. & Prov. 637.7 911.9 1072.0 1255.0 1450.0

Net Current Asset 1990.9 2370.9 2981.3 3468.3 4094.9

Application of funds 4743.9 6150.8 7362.3 8543.4 9945.9

Costs as %to sales except tax rate and avera


25/36

2 5 | P a g e

Contd

Cash Flow Statement (Rs crore)

FY08 FY09 FY10E FY11E FY12E Working Capital FY08 FY09 FY10E FY11E FY12E

Net Profit Before Tax 195.6 216.2 417.4 437.1 574.1 Working cap./Sales 39.4 37.4 37.8 34.7 32.8

Other Non Cash Exp 0.9 3.5 -106.5 -6.9 -7.9 Inventory turnover 4.4 3.9 3.9 4.2 4.4

Depreciation 83.4 140.1 181.8 232.2 292.5 Debtor turnover 56.6 43.7 41.8 45.5 47.4

Direct Tax Paid -43.5 -33.1 -50.1 -52.4 -68.9 Creditor turnover 12.6 9.8 9.0 9.6 10.2

Net Interest 185.3 318.2 354.9 426.3 509.9 Current Ratio 4.1 3.6 3.8 3.8 3.8

CF before change in WC 421.7 644.9 797.5 1036.2 1299.7 Quick ratio 1.9 1.6 1.7 1.7 1.7

Inc./Dec. in Current Liab. 218.2 157.6 158.6 180.0 190.0 Cash to abs. Liab. 0.2 0.1 0.2 0.1 0.1

Inc./Dec. in Current Asset -659.2 -596.4 -558.9 -565.0 -709.5 WC (Excl. cash)/sales 0.4 0.4 0.4 0.3 0.3

CF from operations -19.2 206.1 397.2 651.2 780.2

Purchase of Fixed Assets -854.0 -536.3 -712.8 -743.3 -873.3

Others -556.8 -308.3 -13.7 -125.0 -188.5 FCF Calculation (Rs Crore)

CF from Investing -1410.8 -844.6 -726.5 -868.3 -1061.8 EBITDA 460.5 668.4 847.6 1088.6 1368.6

Inc./(Dec.) in Debt 892.2 658.6 297.8 568.6 728.0 Less: Tax 69.7 75.7 146.1 153.0 200.9

Inc./(Dec.) in Net worth 690.1 298.8 496.8 67.6 0.0 NOPLAT 390.8 592.8 701.5 935.7 1167.6

Others -194.1 -330.6 -367.4 -439.1 -522.7 Capex 854.0 536.3 712.8 743.3 873.3

CF from Financing 1388.2 626.7 427.2 197.1 205.3 Change in working cap. 440.9 438.8 400.3 385.0 519.5

Opening Cash balance 163.0 121.1 109.3 207.3 187.3 FCF -904.1 -382.3 -411.5 -192.6 -225.2

Closing Cash balance 121.1 109.3 207.3 187.3 110.9Valuation

Y-oY Growth (%) FY08 FY09 FY10E FY11E FY12E FY08 FY09 FY10E FY11E FY12E

Net sales 56.0 25.6 24.4 26.8 24.7 PE (adj.)(x) 44.3 43.4 28.2 24.1 18.3

EBITDA 113.6 45.1 26.8 28.4 25.7 EV/EBITDA (x) 16.6 13.2 11.3 9.5 8.2

Adj. net profit 5.0 11.6 46.8 37.7 31.4 EV/Sales (x) 1.5 1.4 1.2 1.0 0.9

Cash EPS 23.0 22.4 48.0 11.0 28.9 Dividend Yield (%) 0.0 0.2 0.2 0.2 0.2

Net worth 69.1 23.1 30.5 11.4 10.8 Price/BV (x) 3.0 2.7 2.2 2.1 1.9


26/36

2 6 | P a g e

ANNEXURE I: SUBSIDIARIES

Exhibit 41:Key Subsidiaries PerformanceName % Stake Turnover EBITDA(%) PAT Capital Employed

CIG Infrastructure 51.0 0.0 NA 0.0 NA

Future Capital Holdings Limited 54.8 136.0 31.5 9.3 1,217.0

Home Solutions Retail (India) Limited 66.9 1071.0 -3.4 -5.7 674.0

Future Agrovet Limited 96.2 391.0 0.4 -3.1 61.0

Future Logistic Solutions Limited 94.2 194.0 5.3 0.2 35.0

Future Brands Ltd 76.3 19.0 1.7 6.2 15.0

Future Mall Management Ltd 100.0 0.0 NA 0.0 NA

Future Media (India) Limited 84.2 46.0 -13.0 -7.7 42.0

Future Mobile and Accessories Ltd 100.0 43.1 NA -2.8 NA

Future Knowledge Services Limited. 100.0 47.0 3.0 0.1 45.0

Future Learning and Development Limited 100.0 5.0 21.9 -0.2 33.0

Future E-Commerce Infrastructure Limited 72.0 118.0 -20.5 -18.7 54.0

Futurebazaar India 99.7 71.9 NA -0.1 NA

Winner Sports Private Ltd. 100.0 33.0 5.9 -0.4 43.0 Source: Company, ICICIdirect.com Research

Home Solutions Retail tapping the home improvement segment

Home Solutions Retail (HSRL) caters to the home building and improvementsegment primarily in the furniture and consumer durables and electronicssegment. It provides complete home solution through its flagship formatHome Town. It also operates other smaller formats like Collection I (lifestyle)and Furniture Bazaar (Value) in furniture segment and E-Zone (lifestyle) andElectronics Bazaar (value) in the consumer durables segment. The companyrecently launched a new format, Home Bazaar, mainly targeted at B and C

cities catering to the specific needs of customers along with Value Benefits.According to Images India Retail 2007 report, the furniture, IT and consumerdurables segment is expected to increase to US$71 billion in 2015 fromUS$23 billion at present, a CAGR of 12%. The market share of this segmentis expected to increase to 11% from 8% in this period. We expect thecompany to leverage efficiently on the opportunity and increase its retailspace to 3.2 million sq ft in FY12E from 1.8 million sq ft in FY09. Withimproving consumer sentiments, we expect HSRL to turn profitable at theEBITDA level in FY11E. The revenue of the company is also expected todouble over FY09 to FY12E from Rs 1070.7 crore in FY09 to Rs 2192.8 crorein FY12E.

Exhibit 42:Home Solutions Retail formats

Home Solutions

RetailValue formats

Lifestyle formats

Home Town

8.6 lakh sq ft

E-zone

4.7 lakh sq ft

Collection I

1.1 lakh sq ft

Home Bazaar

1.1 lakh sq ft

Electronics Bazaar

0.2 lakh sq ft

Furniture Bazaar

1.2 lakh sq ft

Home Town Bazaar

0.8 lakh sq ft


HSRL to double its revenue to

2193 crore by FY12E with a

positive EBITDA


27/36

2 7 | P a g e

Futurebazaar.com to capture online customers

With the launch of futurebazaar.com through Futurebazaar India Ltd (FBIL),PRIL entered into online retailing a.k.a. e-tailing. E-tailing reduces the capexand increases the reach of the company at minimal extra cost. It reducescosts like rental, employee cost, inventory carrying costs, etc. which would

have to be incurred in a brick and mortar format. It creates time utility bysaving travelling cost for the customer and transportation cost for thecompany. PRIL is creating synergy in both the brick and mortar format ande-tailing by providing similar deals on both platforms. The online customerswere offered the same deals like that available at Big Bazaar betweenJanuary 26 and 28, the Sabse Saste 3 Din phenomenon. Combining theonline portal with catalogue retailing through kiosks located in malls andshopping centres, the format attracted a new set of customers. According toindustry estimates, the Indian online shopping business is likely to grow by150% to touch Rs 5,500 crore in 2007-08 from Rs 2,300 crore in 2006-07.The company turned profitable in FY08 with net profit of Rs 3.95 crore andrevenue of Rs 15.64 crore. In FY09, FBIL reported total income of Rs 71.88crore with a marginal net loss of Rs 0.14 crore.

Strong logistics network through Future Logistics Solutions

PRIL forayed into the logistics business through Future Logistics SolutionsLtd (FLSL). Initially set up for captive supply chain management (SCM), thecompany will also be providing logistics services to Future groupssubsidiaries, associations, alliances and vendors. It will cater to logistics,transportation and warehousing requirements of customers. Its operationsfocus on five major verticals, namely warehousing, transportation,international logistics, brand distribution and reverse logistics. Thecompany now has a current warehouse space of over 3.5 million sq ft with67 warehouses across 32 locations. It overseas operations of existing fleet

of over 600 trucks, contracted from established regional and nationalcarrier. The total consolidated warehouse space that the company plans tohave operational by 2010-1011 is nearly 7.50 million square feet. In FY09,FLSL reported total income of Rs 194 crore with an EBITDA margin of 5.3%.

Capitalising on store space through Future Media

To leverage on the existing customer base in the PRIL stores, the companycreated Future Media to build and sell media properties in the consumptionspace. Future Media operates in the out of home (OOH) segment through itsmedia properties like Visual Spaces, Print, Radio, Television and Activationentirely focused on integrated retail space.

Visual spaces includes offering brands an opportunity to showcase theiridentities inside the shopping environment, such as shopping trolleys,carry-bags, elevator doors, standees, danglers, trial rooms, counters, in-store signage, product displays and facades. FMCG brands, industrialapplication companies and leading auto companies are already heavyadvertisers on the Future Media network. Among print properties, FutureMedia offers My World, a monthly magazine targeted at women, to selectcustomers of Big Bazaar and now has also started issuing it on subscription.

It launched Future TV, the television network across Indias largestretailscape. It is the first retailer-owned channel in India, and aims atconverting footfalls into eyeballs by engaging the consumer while in the

mode of consumption. At present, there are over 1500 screens across 44cities in India. Future Theatre is the media vehicle that caters to the ever-increasing cinema-going audiences, which includes the on-screen

Future Bazaar profitable at the

EBITDA level with a turnover of

71.88 crore in FY09

Future Logistics plans to operate

7.5 million sq ft of warehouse

space by 2010-11


28/36

2 8 | P a g e

advertising rights for the Inox chain of multiplexes. The company hasfurther strengthened this vertical by acquiring advertising rights of ErosCinema in Mumbai and E-Square chain of multiplexes in Pune to its kitty. InFY09, the company reported revenue of Rs 46 crore with a negative EBITDAmargin of 13%.

Exhibit 43:Services by Future MediaFuture Media

Visual Spaces

Facades

Drop-downs

Standees

Kiosks

Banners

Floor stickersElevator branding

Trial room branding

Show windows

Print

My World

TelevisionRadio

Future Radio Future TV


Creating and nurturing consumption led sectors through Future Ventures

To create, build acquire, invest in and operate innovative and emergingbusinesses in Indias rapidly growing consumption-led sectors, PRIL

acquired Subhikshith Finance & Investments Limited and renamed it asFuture Ventures India Ltd (FVIL). FVIL intends to exercise operational controlor influence in the business ventures that it promotes or in which it acquiresinterests. In addition to allocating and providing capital, it intends to create,operationally manage and strategically mentor these businesses. Thecompany seeks opportunities at various stages of the growth cycle fromnascent to mature businesses.

The business ventures of the company will get the access to resourcesavailable within the Future Group, which is also focusing on consumption-led sectors in India. The company has entered into a consulting andadvisory services agreement with FCH under which it will source andanalyse opportunities and provide consulting and advisory services, as wellas share its proprietary research. FVILs existing business ventures includeinterests in Sula Wines (the second largest wine maker), Biba ApparelsPrivate Ltd (a womens apparel business), Mother Earth (a retail thatsupplies organic food), Aadhar (a joint venture with Godrej), Sankalp RetailValue Stores Private Limited (the Indian franchisee of Dollar StoresInternational) and SSIPL Retail Private Limited (a retailer of sportswear andfootwear). Post-restructuring, we expect this subsidiary to be hived off inthe financial services holding company. Future Ventures has filed the DraftRed Herring Prospectus for an initial public offering with Sebi, which willenable the shareholders of PRIL to unlock value in the near term.


29/36

2 9 | P a g e

Facilitating consumption through Future Capital

Future Capital Holdings, the financial services arm of the Future group, is inthe business of providing investment advisory services, retail financialservices and research services. It provides private equity and investmentadvisory services to consumption related sectors. In retail financial services,the company provides consumption loans and personal loans andmarketing and distribution of Future Cards (credit card). PRIL with its decadeexperience will facilitate FCH in advising its clients. In the retail financialservices segment, FCH has exclusive right to provide financial products andservices at present and future malls, stores and retail outlets in India whichare owned, controlled or managed by PRIL and its subsidiaries. Thus, FCHcan leverage on existing customers of PRIL reducing the cost of customeracquisition. Also, association with Future group malls, stores and retailoutlets will provide better brand recognition reducing the entry barriers inthe industry.

Exhibit 44:Services by Future CapitalFuture Capital Holdings

Investment Advisory

Services

ResearchRetail Financial

Services

Future Money Future CardReal Estate

Hotels

Kshitij Fund

USD 89 mn

Horizon Fund

USD 350 mn

Indus Fund

USD 200 mn

Retail /Mixed Use

Personal Loans

Consumption Loan

Private Equity

Indivision FundUSD 350 mn



30/36

3 0 | P a g e

ANNEXURE II: Joint venture performance

Exhibit 45:Key JV performanceName % Stake Turnover PAT

Future Axiom Telecom 50.0 286.9 -32.9

Future Generali India Life Insurance Co 25.5 38.5 -25.6

Future Generali India Insurance Co. 25.5 19.4 -8.4

Apollo Design Apparel Parks 39.0 109.4 5.3

Goldmohur Design & Apparel Park 39.0 106.9 5.0

Staples Future Office Products Private 37.5 111.3 -13.1

Talwalkars Pantaloon Fitness Private 50.0 6.1 -1.9

Y/E is March 2009



31/36

3 1 | P a g e

ANNEXURE III: Management Team

Excellent Management TeamThe growth of PRIL has been primarily fuelled by Kishore Biyani, Managing

Director of the company. His vision and foresight has created a revolutionfor the retail sector in India taking a company with single format to multipleformats. From a retailer, the company has been transformed into a retailservices provider. He segregated the business into various subsidiaries androped in the best talent available in the industry to manage them. PRIL isnow a professionally managed company as against a one-man show adecade ago. We believe this talent will enable the company to manage itsassets in a better manner and create a new benchmark for other players.

Exhibit 46:Professional TeamName Designation Educational Qualifications Previous Assignments

Rakesh Biyani CEO - Retail

Advanced Management Program - Harvard

Business School Boston, B.Com.

On the Board of Pantaloon Retail (India) Ltd.

B Anand

Director Finance, Future

Group B.Com. (Honours), CA

Vedanta Resources Group, Motorola India Ltd.,

Credit Lyonnais, HSBC, IL & FS, Citibank, NA.

Anshuman Singh CEO Future Logistics MBA - Finance, B.E. (Mechanical)

Grasim Industries Ltd., H & R Johnson Ltd.,

Bombay Dyeing & Manufacturing Ltd.

Sandip Tarkas

CEO - Future Media and

President Customer

Strategy

Chemical Eng IIT (M), Business

Management IIM (B) Mindshare Fulcrum, Reliance ADAG

Santosh Desai CEO- Future Brands Business Management-IIM(A) President & COO McCann Erikson

Damodar Mall Group Customer Director PGDM - IIM Bangalore, B.Tech. - IIT Bombay Hindustan Lever

Hans Udeshi

CEO - General

Merchandising B.Com. (Honours)

Landmark Group U.A.E., Pearl Global, Littlewoods,

DCM Ltd.

Rajan Malhotra President-Retai l Strategy MBA - Kurukshetra University

Niryat Sam Apparel, Design Connection,

Raymonds

Sadashiv Nayak CEO - Big Bazaar

PGDM - XLRI Jamshedpur,B.E. (E&C) - KREC

Surathkal Hindustan Lever Ltd., Asian Paints

Sanjeev Agrawal CEO - Pantaloons PGDM - IIM Lucknow, B.Tech. - BHU

Balsara Home Products, Modi Revlon, Procter &

Gamble, Godrej Soaps, Hindustan Lever

Vishnu Prasad

CEO - Central & Brand

Factory

MBA - University of Pune, B.Com. -

Nagarjuna University Arvind Mills

Kruben Moodliar

President- Operations

(Value Retailing)

HAND - University of Sussex B.A.

(Economics) - University of Capetown

Checkers Shoprite (South Africa), Game Discount

World (South Africa), RPG Retail

Chandra Prakash

Toshniwal Chief Financial Officer CA - ICAI, CS - ICAI

Donear Synthetics Ltd. , Or ient Vegetexpo Ltd. ,

Control Print India Ltd.

Ushir Bhatt Executive Board Member CISCO, TESCO

Atul Takle

Head - Corporate

Communications M.M.M. (JBIMS)

Accenture, Tata Consultancy Services, RPG

Enterpr ises, Jumbo Electronics Dubai, Indian

Express Source: Company, ICICIdirect.com Research


32/36

3 2 | P a g e

ANNEXURE IV: Retail Sector Growth Drivers

Favourable demographicsThe demographic proposition of the country is shifting year on year. The

contribution of working population (15-64 years) is growing. Approximately63% of population is in the working age group of 15-64 years. According toCensus of India 2001 estimates, it is expected to increase to 69% in 2026.This will increase the overall purchasing power of the country propellinggrowth in the retail industry.

Exhibit 47:Share of population by Age

32%

63%

5%

23%

69%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80%

0-14

15-64

65+

Ag

einYears

2006 2026

Source: Census of India 2001 estimates, ICICIdirect.com Research

Increasing incomeAccording to McKinsey Global Institute (MGI), Indian income is expected totriple over the next two decades. Average real household disposable

income has increased from Rs 56470 in 1995 to Rs 113,744 in 2005, CAGRof 3.6%. It is expected to grow from Rs 113,744 in 2005 to Rs 318,896 by2025, a CAGR of 5.3%. With the rise in disposable income, consumers willhave more money to spend resulting in higher consumption. According toMGI, increasing household income will contribute 80% to the consumptiongrowth.

Exhibit 48:Growing household disposable income

0

50

100

150

200

250

300

350

1985 1990 1995 2000 2005 2015 2025

Rs.

in'000

CAGR 3.6%

CAGR 5.3%

Source: MGI, ICICIdirect.com Research

Average household

income to grow at CAGRof 5.3% over 2005-15

period

Highest proportion of population

in working age group

Average household income to

grow at CAGR of 5.3% over2005-15 period


33/36

3 3 | P a g e

Rising middle income groupDespite significant progress, India today remains dominated by peopleliving in the deprived and aspirer classes. According to MGI, the middleclass currently constitutes just 13 million households i.e. 5% of thepopulation. By 2025, India will transform itself into a nation of strivers andseekers with 128 million households i.e. 41% of the population in the middleclass. According to MGI, middle class will expand to the point where it will

command 60% of the total consumption by 2025.

Exhibit 49:Growing Middle Class

0

50

100

150

200

250

300

2005 2015 2025

No.

ofHouseholds(Mn)

Deprived (Rs. 1000000)


Increasing consumptionIndia has entered into a virtuous cycle in which rising income leads toincreasing consumption, creating more business opportunities andemployment, further fuelling GDP and income growth. Indias growth hasbeen largely fuelled by domestic consumption (62% of GDP) as comparedto Asian peers like China (47% of GDP).

Exhibit 50:Domestic consumption as % of GDP

3 1

-2

-6

44

2328

2014

1812

16

39

5762

70

-20

-5

10

25

40

55

70

China Japan India US

%ofGDP

Net Trade Investment Government Consumption Private Consumption


The combination of increasing household income (contributing 80% toconsumption growth) and growing population (contributing 16% toconsumption growth) is expected to increase the overall consumerspending. According to MGI, aggregate consumption in India is expected togrow (in real terms) from Rs 17 trillion today to Rs 34 trillion by 2015 and Rs

70 trillion by 2025, a fourfold increase. India is expected to become theworlds fifth largest consumer market by 2025 from the current twelfthlargest consumer market at present.

Proportion of middle class to

rise from 5% in 2005 to 41% in

2025


34/36

3 4 | P a g e

Exhibit 51:Aggregate consumption dominating middle class

0

10

20

30

40

50

60

70

80

1985 1995 2005 2015 2025

Rs.

Trillion

Deprived (Rs. 1000000)

middle

class

4.1x


Increasing proportion of working womenThe propensity to consume is higher in working women as compared tohousewives. According to a report by Technopak India consumer trends2007, the share of working women is expected to rise to over 20% of thetotal urban female population by 2020 from 15% currently. The buyingbehaviour of the working women is different than their counterpart due tohigher disposable family income and less availability of time. The workingwomen prefer to go to a one-stop shop for purchasing regular products,which augurs well for organised retailing formats.

Exhibit 52:Average Spend: working women vs. housewivesCategory Spend

Household goods 2.2

Eating out 2

Music 2.5

Gifts 2.9

Mobile phones 3.8

Computer peripherals 4.1 Source: CRISIL Research, ICICIdirect.com Research

Increased credit availableThe ease of payments (ability to spend without cash) due to the use of debitand credit cards has resulted in increase in total spending. With the launchof easy monthly instalment (EMI) cards and co-branded credit cards, thepurchasing power of the consumers has increased tremendously. The useof plastic money, i.e. debit cards and credit cards, has increasedsignificantly over the past three to four years. The value of transactionsdone through credit cards has increased at a CAGR of 25.7% over FY07-09period to Rs. 65,356 crore, while that of debit cards increased at a CAGR of50.7% over the same period to Rs 18547 crore. An anticipated increase inthe penetration of plastic cards would provide further fillip to organisedretail sales.


35/36

3 5 | P a g e

Exhibit 53:Increased usage of debit and credit cards

8,17212,521

18,547

41,361

57,984

65,356

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

FY07 FY08 FY09

Rs

Crore

Debit Card Credit Card


Increased mall spaceMalls are being increasingly accepted as venue for shopping andentertainment in the urban areas. It has become a destination where thewhole family can shop, dine and have fun. As a result, the number of mallshas seen a sudden rise in the past three to four years due to rising incomeand consumers willingness to spend. According to Images F&R Research2008, the mall space in the country has increased from 3.7 million sq ft in2002 to 26.9 million sq ft in 2006 and is estimated to increase to 350 millionsq ft by 2015.

Exhibit 54:Mall space

0

50

100

150

200

250

300

350

400

2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mn.S

q.F

t

0%

20%

40%

60%

80%100%

120%

140%

Space Mn. Sq. ft. Growth (%)

Source: Images F&R Research 2008, ICICIdirect.com Research

Penetration in Tier 2 and Tier-3 expected to riseWith the approaching saturation of Tier-1 cities and metros and risingcompetition, retailers are eyeing opening stores in Tier-2, Tier-3 and Tier-4cities. These cities are plush with high income/high net worth consumersand mall developers are exploiting the potential. Besides the commonlylisted Tier-II, Tier-III cities like Indore, Nagpur, Ahmedabad, Pune, Mysore,Kochi, Hyderabad, Sonepat, Lucknow, Ludhiana and Jaipur, there arenumerous smaller cities where modern malls are coming up. These non-extinct urban centres that accounted for only 3.57 lakh sq ft of mall space in2004 are expected to boast of 4.7 crore sq ft of mall space in three years.Organised retailing in small-town India is growing at 50-60% a yearcompared to the 35-40% growth in the major cities of India. About 200 tier-

III cities with a population of less than two million, and another 500 ruraltowns have the potential to become prominent rural hubs, where organisedretailing can effectively set base.

Mall space to reach 350 million sq

ft by 2015


36/36

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.comassigns ratings to its stocks according to their notional target price vs. current market price andthen categorises them as Outperformer, Performer, Hold, and Underperformer. The performancehorizon is two years unless specified and the notional target price is defined as the analysts'valuation for a stock.

Strong Buy: 20% or more;Buy: Between 10% and 20%;Add: Up to 10%;Reduce: Up to -10%Sell: -10% or more;

Pankaj Pandey Head Research [email protected]

ICICIdirect.com Research Desk,ICICI Securities Limited,7th Floor, Akruti Centre Point,

MIDC Main Road, Marol NakaAndheri (East)Mumbai 400 [email protected]

ANALYST CERTIFICATIONWe /I,Bharat Chhoda MBA (Finance) Prerna Jhunjhunwala MBA (Finance) Jehangir Master ACA research analysts, authors and the names subscribed to this report, hereby certifythat all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of ourcompensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA andmight not be an associated person of the ICICI Securities Inc.

Disclosures:ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We alongwith affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and otherbusiness relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our

investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family membersfrom maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein isstrictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or tothe media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICISecurities, its subsidiaries and associated companies, their directors and employees (ICICI Securities and affiliates) are under no obligation to update or keep the informationcurrent. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular

ICICIdirect Pantaloons Retail Coverage

Documents

Transcript of ICICIdirect Pantaloons Retail Coverage