Pantaloon Retail India Limited - Riedel Research Retail India...discount stores which are extending...

Pantaloon Retail India Limited

A ‘Bazaar’ to Invest in - BUY

September 04, 2008


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Slide 2 of 44

Content Slide No.

  Financial Snapshot 3

  Executive Summary 4

  Investment Highlights 5

  Competitive Landscape 21

  Recent Performance 28

  Financial Projections 29

  Revenue Model 30

  Valuation 31

  Recommendation 33

  Management Q&A 34

  Company Description 37


Country India FY Jun. (in INR mn) 2007A 2008E 2009E 2010E

Region Asia Net Revenue 32,367.4 56,114.2 79,335.9 105,457.7

Ticker (Reuters/ Bloomberg) (PART.BO) EBITDA 2,156.0 4,115.8 6,114.8 7,815.7

Sector Consumer EBITDA Margin 6.7% 7.3% 7.7% 7.4%

Industry Retail EPS 8.18 8.63 14.38 18.61

Mkt. Cap Large CFPS 10.69 13.42 21.16 27.04

Investment Style Growth FV/EBITDA 28.4x 14.9x 10.0x 7.8x

Up/ Downside (to target price) 65.1% P/E 41.6x 39.5x 23.7x 18.3x

Report Type Re-initiation Price Performance 2005 2006 2007 YTD

Recommendation Buy Absolute 158.8% 21.6% 97.9% -59.1%

Relative 118.1% -25.2% 52.4% -30.9%

52-week Range 875-317 2 Year Price Chart

Dividend/Yield 0.2%

Market Cap (USD mn) 1,137.0

3M Avg Daily Value (USD mn) 1.3

Est. 5-year EPS Growth 37.8%

Controlling Shareholder/% 46.5%

L-T Debt/Equity Capital 119.0%

ROE (FY09E) 11.2%

Current Book Value/ Share (FY08E) 114.7

Price/Book 3.0x

Source: Reuters, Company Reports and RRG Estimates, Price performance relative to Sensex, CFPS = (Net Profit + Depreciation) / No. of shares fina

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  Pantaloons is the largest Indian retailer having an established presence in all the retail verticals and operating multiple retail formats, viz. Pantaloon, Central, Big Bazaar and Food Bazaar,

  Globally, organized retail contributes about 80% of the overall retail sector. Unlike the developed nations, the organized retail penetration is low in developing countries. with Indian penetration estimated at a modest 6%-8% as of 2007.

  Key factors such as strong economic growth, favorable demographics, increasing number of dual income families, changing lifestyle, rising aspirations of young consumers and increase in discretionary income expected to drive growth in the Indian organized retail market. We expect the organized retail sector to grow rapidly and reach a 15% penetration level by 2013.

  Pantaloon has successfully tapped the opportunities within the retail space, especially in the value formats. The Company has been able to leverage on its multi-formats-multi-brand stores, secure prime locations at the best possible prices and command a strong bargaining power with suppliers, which provide it an edge over its competitors.

  Pantaloons’ ability to understand the Indian consumer psyche, its experience in managing growth, massive expansion plans, excellent execution capabilities, sound financial performance and huge growth opportunities (offered by the organized retail boom in India) augur well for the Company’s overall future prospects.

  Notwithstanding the inflationary trends in the economy, the management has indicated that it is confident that they will be able to control increases in average rentals. Management confirmed in multiple discussions with RRG analysts that they are confident of their growth prospects, though the current real estate environment has resulted in minor delays in properties coming on-stream.

  The stock trades at less than 8x 2010 EV/EBITDA. We maintain our positive outlook on the stock and recommend a BUY with a target price of Rs 561, an upside of 65% from current levels.

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Pantaloons – Invest in the Pioneer Transforming India’s Small ‘Bazaars’ into ‘Big’ & ‘Organized’ - BUY

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Low Organized Retail Penetration in India

  The global retail sector posted a CAGR of 5% for the last five years (2003-2007) to reach a value of USD9.1 tn in 2007. Food, apparel and technology retailing dominate the sector, accounting for about 59.9% of the overall market size.

  The organized retail sector is largely dominated by developed countries such as the US, Japan and the European nations, where it contributes over 80% of the total retail revenue. Developing countries such as China, India and Brazil are coming up the ladder experiencing a rapid growth in organized retail. However, the level of penetration varies from 5% to 30%, against 75-85% in developed countries.

  In China, the share of organized retail rose to 20% in 2006 from less than 5% in 1990, growing at a CAGR of 24.2% to USD196.6 bn.

  Traditionally dominated by ‘mom and pop stores’ the Indian retail sector valued at USD309.7 bn, contributed about 34.2% of India’s GDP in 2007.

  In India, organized retail has very low level of penetration, estimated at only 6-8%. However, the country is catching up, with the sector witnessing a high growth similar to the one observed in the telecom sector over the last 10 years.

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Comparative Penetration of Organized Retail

Source: Ernst & Young Retail News/Spring 2006 Report

Improved from 3% in

2004 to 6-8% in

2007

Source: Standalone Grocery Store in Mumbai, Riedel Research

Source: Standalone Apparel Store in Mumbai, Riedel Research

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Rapid Economic Growth, Favorable Demographic Changes and Rise in Income Levels Driving Growth…

Economic Growth

  Strong economic growth in India is contributing to overall growth of the retail industry.

  There has been significant rise in income levels in India, which is driving consumer spending.

  In 2007, per capita income in India was INR 29,382 per year or INR 2,448.5 per month. Also, per capita income in 2006-07 grew 14.2%.

  The rise in per capita income over the past few years has enabled Indians to spend more on consumer items such as mobiles, cars, etc.

Favorable Demographics

  India has a large young and working population.

  The Indian population is relatively young with a median age of 24 years as compared to the populations in US, China and Japan where median age is 35, 30 and 41 years respectively.

  The working population’s share in India is the highest in the world. A young working population with high propensity to consume holds significant promise for organized retail in India.

  The percentage of number of working women in India has risen from about 12% in 1961 to almost 25% in 2005. (Shopper Stop annual report)

  This has resulted in steady growth in household disposable income, driving retail spending.

  The increased percentage of working women has also led to the opening of new retailing formats and products which are exclusively catering to the women’s segment.

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% Share of Population in Each Income Bracket

Source: Mckinsey Report

Source: IMF

GDP (PPP) of India

Slide 6 of 44


Along with Rising Urbanization & Easy Availability of Credit…

Rising Urbanization

  The level of urbanization in India is approximately 30% and is expected to grow in near future.

  The growth in the retail sector will be driven by increased urbanization, as this is characterized by a rise in income levels and better infrastructure facilities.

  The Company believes that there exists significant potential in rural India as well. As this population emerges, the growth potential will be enormous.

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Source: MGI India Consumer Demand Model, v1.0

Aggregate Urban Consumption

Retail Portfolio of Banks

Source: RBI, ICICI Bank Presentation

Easy Availability of Credit

  The Indian consumer is highly underleveraged. Retail credit to GDP ratio in India is among the lowest globally. Retail credit to GDP ratio in India is 13% as compared to 60% in Malaysia and 90% in US. This has been so primarily because traditionally the Indians have been averse to taking credit.

  With changing consumer habits, the Indian consumers are overcoming this inhibition. Moreover, the availability of credit has become easier. Many banks and lending institutions are providing customers with specially designed and customized loan schemes and trying to make the overall loan procedure fast and less complex.

Slide 7 of 44


Share of Organized Retail In India

Source: omretail.com

  Currently, the organized sector has 6-8% share of the overall retail market.

  Clothing and non food & beverage together constitutes the largest segment of the organized retail sector with a share of 82.0%. The balance is contributed by food & beverage.

  The food and beverage segment is lagging behind the clothing segment as majority of the Indian consumers do not prefer packaged food.

  The Indian consumers have only recently been exposed to the modern formats of organized retail. However, the market is growing at a rapid pace. From a mere 3% in 2004, the penetration level increased to 6-8% in 2007.

  Strong economic growth, favorable demographic profile, rising number of dual income families, changing lifestyles & rising aspirations of young consumers and increasing discretionary incomes are some of the key factors driving growth in organized retail.

Organized Retail Penetration Likely to reach 15% by 2013 st

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Source: Organized retail, Apparel Stores, Pantaloons, Suburban Mumbai, Riedel Research Source: Coffee shop in a mall of suburban Mumbai, Riedel Research

Slide 8 of 44


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Source: Lifestyle Retail (Pantaloons) and Value Retail (Big Bazaar), Suburban Mumbai, Riedel Research

Pantaloon: A Front Runner in Indian Retailing

  Pantaloon Retail, a INR50 bn ($1.1 bn) Company, is a leading player in India’s organized retail market, offering retail solutions for five business segments - food, fashion and footwear, general merchandise, leisure & entertainment and home. The Company operates more than 9 mn square feet of retail space in 61 cities across India. Despite being a late entrant, Pantaloons emerged as a front runner in organised retailing within a short span, thanks to its speedy and successful execution of projects across various formats.

  While the other retailers initially focused only on the lifestyle segment targeting the upper middleclass and above, Pantaloon was the first one to identify the opportunity in the value retail segment and introduced its flagship value retail brand ‘Big Bazaar’ targeting the average middleclass population. In a country like India, the growth potential of this segment is enormous as the middle class forms the vast majority, willing to spend on value retail goods.

  To capture a bigger share of the consumer spending, the Company is also extending its presence in niche formats such as Chamosa (tea and snacks bar), Navras (jewelry stores), Depot (books store), F123 (gaming zones), Star and Sitara (Saloon & Spa), Planet Sports (sports accessories), e-zone (electronic goods store) etc. The presence in niche segments not only diversifies the risk but also helps to grab bigger chunk of retail consumer spending

Slide 9 of 44


First to Identify and Focus on Value Retail

  Majority of Indians perceived modern shopping outlets as expensive options, which are characterized by swanky interiors, glittery floors and huge glow signs. Pantaloon strongly believed that the western retail model would not be very successful in India; rather the retailers need to pay heed to the preferences and dislikes of Indian consumers without imposing the ‘western culture’ on them.

  From its experience in lifestyle store (Pantaloons) operations, the Company noted that there is always a conspicuous rise in sales during the discount sale seasons. This helped the Company to understand the Indian consumer psyche, driven by the ‘Value for Money’ concept, and spot the huge business opportunity in the value segment. The value retail stores of the Company are 365 days discount stores which are extending the list of offerings from mere apparels (as in case of Pantaloons) to ‘everything under one roof’. At the start of August 2008, the Company announced a super saving scheme in its value retail chain, which resulted in a single-day turnover of INR1 bn and attracted 6 mn footfalls in 5 days.

  The consumers can shop for clothing, utensils, fast moving consumer goods (FMCG), consumer durables, furniture, electronic goods, stationery, food and beverages, among others. These stores are designed to look ‘crowded’ as the average middle class Indian consumers are averse to imposing structures and empty stores. In order to enable the customers to shop freely, the management ensures that the salesmen manning these stores do not look smarter and intimidating to the average customer.

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  The concept designed and devised by the management is ‘Big’ and so is the branding of the store done. The flagship value retail chain of the Company is named as ‘Big Bazaar’. ‘Bazaar’ in Hindi (the Indian national language) means market.

  Competitors are following suit with the launch of Hypercity by Shoppers Stop and Vishal Mega Mart by Vishal Retail. The format of these stores is similar to that of Big Bazaar.

Swanky lifestyle stores Value retail draws huge footfalls

Source: Lifestyle and Value Retail, suburban Mumbai, Riedel Research

Slide 10 of 44


Moving Strategically

  The lifestyle retail segment comprises of mainly luxury apparels, footwear & leather accessories, and jewelry. While these segments form a smaller portion of the total retail pie in India, penetration of organized retail is high in these segments.

  Footwear (32%), clothing (17%) and consumer durables (16%) are highly organized as compared to other components of the retail industry. While 32% of footwear industry sales and 17% of clothing industry sales are organized, penetration is particularly higher in branded footwear and luxury apparels, which is catered by lifestyle segment .

  Through its value retailing format, Pantaloon caters to the segments least catered by organized retailers in Lifestyle formats.

  Indian Government allows 51% FDI in single brand retail chains, but does not allow investment in multi brand retail chains. The single brand chains can compete with department stores in lifestyle segment. But the value retail segment which is characterized by multiple brands and multiple products remain insulated from the foreign competition. Furthermore, to survive and grow in the value retail segment in India, a prospective player needs to acquire a thorough understanding of Indian consumer psyche. The Pantaloon group has a definitive edge in this respect. in

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Penetration of Indian Organized Retail in various categories

Source: omretail.com

Source: Company Report

Lifestyle contribution to total revenues

reducing

Increasing share of value retail

Slide 11 of 44


Targeting the Masses

  The Company has planned to capture the lower end of the economic pyramid by opening KB’s Fairprice. This retail format is a lower version of a typical hypermarket, offering low priced food and general merchandise. As this is a low margin business, this format does not provide amenities such as air-conditioning, unlike other value and lifestyle formats.

  The format does not even offer a carry bag to its customers so as to keep the costs low.

  The products range from food products to apparels, but unlike ‘Food Bazaar’ no perishable items are sold through these stores.

  The Company owns some of the FMCG brands (eg. ‘Tasty Treat’). As the margin in private labels are high , it intends to increase the share of own brands in KB’s Fairprice shops.

  These stores are generally built on an area of 1,000 to 2,000 square feet and costs around INR350-400 per square feet to develop. The management indicated that as compared to KB’s Fairprice shops, the development of value retail formats cost around INR1,000-1,200 and the lifestyle retail formats cost around INR1,600-1,700.

  From the present count of over 100 stores, the Company plans to add another 1,400 stores in the next 18 months. id

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Bottom of the Pyramid

Value

Value / Lifestyle

Lifestyle

Source: Company Presentation

Source: Company Own Brand, KB Fair Price, Mumbai Suburbs, Riedel Research

KB’s Fairprice

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Demonstrated Excellent Execution Capabilities po

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idth

1987

1988

1989

1990

1991

1992

1993

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1996

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1999

2000

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2003

2004

2005

2006

2007

2008

Product Centric

Brand Centric

Distribution Centric

Retail Centric

Knowledge Centric

Design Centric

Manz Wear Pvt.

Ltd. BARE

IPO (May) Pantaloon Shoppe

(Franchisee Format) 1st in Kolkata 1st in Kolkata

1st in Mumbai

1st in Bangalore

1st in Bangalore

In the last two decades, the Company has introduced different formats and multiple

brands, and covered various geographies at a fast pace. This was achieved with the vision of

the management and the support of the professional team. This demonstrates the

excellent execution capabilities of the Company.

Source: Company Reports, Riedel Research

Slide 13 of 44


pres

ence

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Source: Company Websites, Riedel Research Estimates

More

Shoppers Stop

Vishal Mega Mart

Trent

Delhi

Kolkata

Mumbai

Chennai Bangalore

Pantaloons

Delhi

Kolkata

Chennai Bangalore

Mumbai

Has a Pan India Presence

61 cities, 9 mn sqft.

Revenue Break up by Geography (FY08E)

Slide 14 of 44


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Retail Space Addition

Source: Company Reports and Riedel Research Estimates

And Expanding Aggressively

  Since inception, Pantaloon has grown multi-fold and has made its presence felt across all the segments in the retail chain. The Company started off with its first store Pantaloons and since then has dabbled into different retail segments viz. value retailing (including Big Bazaar and Food Bazaar), lifestyle retailing (Pantaloons and Central) and home solutions retailing. Contrary to the general perception that organized retail is for the urban population, Pantaloon Retail India has exhibited a robust growth in tier II cities and towns. The retail formats launched have been well accepted by the Indian consumers across cities and towns and has become a huge success. The table below gives the details of retail space added and YOY growth over the last three years.

  Out of the three formats, value retail has the maximum penetration in India. It has far more growth opportunities as compared to lifestyle. Growth in retail space addition also has been the maximum in this value format, at a CAGR of 82.7% for the period of FY06-08.

  Going forward, the Company plans to add about 4-5 mn sq ft of retail space annually for the next two-three years. On a conservative basis, we have factored in an addition of 3.5 mn sq ft for the next two years and 3 mn sq ft thereafter. To fund the expansion plans, the Company would need to raise capital through a mix of debt and equity.

Source: Big Bazaar, Suburbs of Mumbai, Riedel Research

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We Don’t See Any Issues of Space Availability no

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Malls in Major Cities in India

Source: Shoppers Stop Presentation

Source: FICCI Report, Technopak Analysis

Mall Space Planned 2006 (Current)

2007 (New)

2008 (New)

2009-10 (New)

2010-11 (New)

Area (Mn. Sq.ft.) 32 55 37 31 27

Number 180 210 118 93 82

Avg. Area of a Mall (in Mn. Sq.ft.)

0.18 0.26 0.32 0.33 0.33

  The real estate sector in India is growing fast. According to retail player Shoppers Stop, India will have more than 1,000 hypermarkets and more than 3,000 supermarkets in the next 4-5 years.

  According to Cushman & Wakefield study, 300 mn sq ft of retail space will be added by 2011 of which almost 50% will be consumed by shopping malls. Also, 35-40% of this development will take place in smaller town and cities.

  The rentals form 6%-7% of the net revenues of the big retailers who anchor the malls. This would be in the range of INR40-60 per sq ft per month, depending on the location of the retail space. In last 12-18 months, some of the major retailers have also paid rentals in the range of INR80-90 per sq ft. Small retailers, lacking the bargaining power, end up paying INR150-INR300 per sq ft for similar space. As a result, they often find the business model unviable.

  The recent boom in real estate had soared the rentals, affecting the sustainability of retail business model.

  The rise in rentals would slow down the growth plans of major retailers, which in turn would reduce the demand for rapidly growing retail space. The excess supply of real estate would bring in equilibrium, reducing rentals.

  According to industry sources, the rentals are already declining in major cities and we expect it to decline further.

Supply of Real Estate in India

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Power of ‘Big’

  The Company’s strategy for its retail formats specially value segment is volume oriented. It directly purchases its products in volumes from the manufacturer rather than from a retailer, thus eliminating the chain of middlemen. The supplier on the other hand has a large confirmed order from a major retailer having pan-India presence and hence is willing to tie-up with the Company. The Company’s presence across geographies enables it to have access to a huge supplier base and enjoys considerable bargaining power over its suppliers.

  Rentals form a major part of overall costs for any retail business. In case of Pantaloon, the Company had foreseen the scenario of increasing demand for real estate and so had aggressively secured real estate spaces across India at reasonable rates. Also, it has entered into contracts with long lease periods for some of its retail formats. This enables the Company to lock in future rentals at discounted rates. For most of its retail formats, the Company acts as an anchor tenant. Being the anchor, it enjoys much lower average lease rentals as compared to rentals charged to the small format stores in the same retail space.

  Currently, the average rental paid by the Company is about INR50-60 per month per sq ft. In the last 12-18 months, the Company has also paid rentals in the range of INR80-90 per month per sq ft in some of the uptown locations. Source: Mega Sales Scheme, Big Bazaar, Mumbai Suburbs,

Riedel Research

Slide 17 of 44


supp

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agem

ent

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ics Managing the Backend

  The Company’s subsidiary Future Logistics provides cost-effective, integrated, end-to-end solutions within the supply management chain. The warehousing and logistics business of the Company is not only meant for captive consumption, but would also be available as a service for other retailers.

  It aims to improve operational efficiency by focusing on the entire supply chain management, right from the supplier to store warehouses for costs lower than its existing supply chain cost. As part of this initiative, the Company plans to consolidate the number of warehouses to around 6-7 (bigger in size) in the next 2-3 years and simultaneously introduce supply chain efficiencies in apparel sourcing. It is planning to put into operation conveyor systems to adjust the delivery of apparels in cartons to hangers. This would not only reduce the operational cost but also improve inventory management, thus reducing the amount of working capital required for continuing the business. Source: Rakes to stock goods, Footmart, Suburbs of Mumbai, Riedel

Research   Currently, Future Capital’s total warehouse area is about 3 mn square feet. It intends to add about 2-4 mn square feet warehouse

area in the coming 2-3 years. It will also build 4 Mega Merchandising Hubs (MMH) of about 250,000 square feet each.

  In 2006, it has implemented GPS (Global Positioning System) for outbound deliveries which is expected to be implemented nationally in near future. The Company owns a fleet of over 200 trucks for managing deliveries efficiently.

  It has implemented SAP at all its Master Distribution center (MDC) and other Regional Distribution Centers (RDC). Further, Virtual Private Network (VPN) is available at all the centers which allows close monitoring

Slide 18 of 44


…Supply Chain Issues, Along With Large Capital Requirement and Escalating Rentals May Hamper Growth

  Rising rentals: Rentals form approximately 6-12% of the revenues generated by Indian retailers. The rentals are largely dependent on the location of the retail space and bargaining strength of the lessees. Over the past few months, the rentals have skyrocketed and reached up to 20-25% of revenues in case of the small retailers who lack the bargaining power. Further rise in rentals could seriously hamper the expansion plans of industry players.

  Execution delays: In the retail industry, there is a time lag in between the possession of the property/mall and commencement of operations, as the occupancy certificate is obtained only after the construction is completed. However, due to competition, companies secure the real estate properties, especially in prime localities, in advance. Any delay in obtaining the certificate could lead to high costs and hamper the margins of the Company.

  Logistics and supply chain issues: Logistics and supply chain is the lifeline of the retail industry. The poor infrastructure in India increases the logistics cost thus affecting the margins adversely.

  Large capital requirements: Indian retail companies are in expansion mode and require huge capital for the same. Looking at the current interest rate scenario and low margins in the business, we believe that raising capital on favorable terms is not going to be easy.

  Dearth of skilled labor: Retail industry is facing problem in recruiting the right talent as the competing industries such as the outsourcing sector pay more compared to retail industry.

  Competition: Going forward, there will be cut-throat competition in the Indian retail space. Already, every large business group in India has either established its presence or is planning to get into retail.

  Economic slowdown: The economic growth rate is expected to decline this year, and this may have a direct impact on the retail industry.

  Understanding the consumer behavior remains a key challenge: The Indian consumer has only recently been exposed to organized retail. Shoppers Stop was the first entrant in the organized retail industry in India, but the big opportunity was first captured by Pantaloon Retail. The players who understand the consumers would grow faster in the competitive environment.

  Unrest from local retailers: There were some incidents of unrest among the local retailers against the organized retail formats which pose a survival threat for them. The rise in number of unrest could slowdown the growth plan of organized retailers in those areas.

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cont

inue

Slowing Same Store Sales

Same Sales Growth % (Since Jan 2006)

Source: Company Reports

  The Company’s same store sales slowed down in the second half of 2007. However it soon bounced back in March 2008. Same store sales in life style retailing registered single digit growth in Q3FY08, while value retailing posted higher (double digit) growth. The main reason for slow sales growth is higher competition, particularly in the value segment, with chains including Trumart, Reliance Fresh, More for you and Subhiksha expanding their presence. In the major cities, the organized retail formats are often located close to each other and offer the same merchandise. As a result, these chains try to attract consumers by offering huge discounts and other promotional benefits. However, the last few months saw an increasing trend in same store sales as compared to last year. Although same store sales have shown an increasing trend, they are expected to stabilize with the opening of more stores.

Source: Central Mall, Suburbs of Mumbai, Riedel Research

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Major Competitors

  Shoppers Stop

Shoppers Stop is a leading departmental store in India, hosting several international and domestic brands. The company caters to various product segments including apparel, accessories, cosmetics, home and kitchenware. It also has its own private brands. Different brands available at Shoppers Stop are Stop, Life, Kashish, Vettorio Frantini, Elliza Donatein, Haute Curry, i Jeans Wear, Insense, Mario Zegnoti, Acropolis, Indi-Visual and Push & Shov, Tommy Hilfiger, Esprit and Frich Connection and others. It offers more than 400 national and international brands for consumers. During FY08, the company reported revenues of about INR213 mn.

  Vishal Retail

Vishal Retail is a leading retail company involved in the business of manufacturing and retailing of readymade garments (apparels), non-apparels and FMCG products. The company is expanding its operations at a rapid pace and focuses on tier II and III cities in the country. Its manufacturing facilities are located in Gurgaon, Haryana, Dehradun and Manesar, with a capacity of 5,000 garment pieces per day in each unit. The company was a pioneer in discount retailing and had opened India’s first hypermarket in Delhi. The company has about 135 showrooms in 87 cities and 20 states in India.

  TRENT Limited

TRENT Limited is among one of the major retailers in India, operating a chain of retail stores under the brand name Westside. The Westside stores offer apparels, cosmetics, perfumes, handbags, footwear, household accessories, lingerie and gifts for men, women and kids. The company has about 31 Westside stores located in major Indian cities including Mumbai, Bangalore, Hyderabad, Jaipur, Chennai, Pune, Delhi, Noida and others. Trent also operates discount hypermarkets under the brand name Star Bazaar. Star Bazaar offers a wide range of consumer products including staple foods, beverages, health and beauty products, vegetables, fruits, dairy products, consumer electronics and household items at reasonable and economical prices. The company’s subsidiaries include Trent Brands Ltd, Fiora Services Limited, Satnam Developers and Finance Private Ltd and Nahar Theatres Private Ltd. Trent holds about 79% stake in Landmark Limited, a retailer of books, toys, stationery and music. As of March 31, 2008, Landmark Limited had 18 stores (including seven airport and hotel stores).

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Source: Suburban Mumbai, Riedel Research

Source: Suburban Mumbai, Riedel Research

Source: Badarpur, Delhi, Riedel Research

Slide 21 of 44


All Major Players have Strong Expansion Plans…

Company Growth Plans

Shopper Stop Shoppers Stop has plans to increase the number of its departmental stores to 41 by 2011. It has plans to operate 6mn sq ft by 2011.

Pantaloon Retail Limited

Pantaloon has plans to add 4-5 mn sq ft of retail space every year. By FY2008, the Company plans to add 1) 15 new Fresh Fashion stores and additional 0.5 mn sq ft, 2) 3 Central stores, 3) 4 Brand Factory stores, 4) 150,000 sq ft in Blue Food and Pan Foods, 5) 46 Shoe Factory and 6 Pairs outlets, and 6) 400+ Future Money outlets.

Vishal Retail Limited Vishal Retail aims to grow up to 500 stores with 10 mn sq ft of retail space by FY2011. The Company signed MoUs (Memorandum of Understanding) for 1.5 mn sq. ft of retail space with average rental cost of INR31/- per sq ft per month. The company has plans to employ up to 70,000 people and will also invest USD751.22 mn by 2011.

Trent India Limited Trent is planning to put more emphasis on sustainable store level profits. The company will focus on the rollout of over 50,000 sq ft Star Bazaar Stores. Trent is entering into an exclusive franchise agreement with Tesco. This arrangement will allow Trent to have access to Tesco’s extensive retail expertise and technical capability. This will boost the growth of Trent’s hypermarket business, which is operated under the name Star Bazaar.

Reliance Retail Reliance Retail has plans to cover 1,500 cities and towns across India with 5,500 outlets in formats such as convenience stores, supermarkets, specialty stores and hypermarkets. The company plans to have 14 verticals while putting more focus on food. It has planned investments of USD5.5-6.0bn (USD2.5bn equity). Investment of USD750 mn has already been cleared by the board. The company expects revenues of USD20-25 bn and total retail space of 100 mn sq ft by 2010. Also, the company plans to employ 500,000 people. Reliance Retail will form a joint venture with leading European supply chain specialist Wincanton for its food and grocery and hypermarket businesses. The company will open 50-60 'i-stores' in the next 18 months and plans to open 150 Reliance Digital stores by 2011-12.

Bharti Wal-Mart Bharti Wal-Mart plans to open 10-15 wholesale stores over the next 5-7 years, with the first store scheduled to be opened in the 2H2008. The company’s plans for 8 new stores have also been finalized. Bharti will operate the front end in the hypermarket and superstore formats, while Wal-Mart will support the back-end activities.

Future Plans

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Slide 22 of 44


…With Presence Across the Main Formats …

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Retail Format Group name Store brands Number of stores

Departmental Stores

Raheja Group Shoppers Stop 24

Pantaloon Retail Pantaloon, Central 41

Tata Trent Westside 29

Reliance Reliance Trends 3

Food and General Merchandise Stores

Pantaloon Retail Big Bazaar 91

Pantaloon Retail Food Bazaar 136

Reliance Retail Reliance Fresh 600

Tata Trent Star Bazaar 4

Vishal Retail Limited Vishal Mega Mart 100

Reliance Retail Reliance Mart 3

Specialty Stores

Raheja Group Crossword 48

Raheja Group Brio, the café bistro 25

Raheja Group HomeStop, Stop & Go, MAC 3

Tata Group Croma 4

Reliance Retail Reliance Digital 5

Tata Trent Landmark 18

Pantaloon Retail E-zone, Furniture Bazaar, Home Town, Depot 27

Retail Sector Classification

Source: Industry

  Presence in multiple formats synergizes the growth of overall business and diversifies the risk associated with it.

Slide 23 of 44


…Also Foraying into Niche Segments …

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  As rising inflation and high interest rates could hurt the consumer spending on retail, the retailers have forayed into niche segments catering to the leisure and entertainment needs of the consumers in the retail outlet itself. This would negate the inflation impact and keep attracting more footfalls.

  Pantaloons has opened unisex saloons, gaming centers at nine of its Big Bazaar stores and Chamosa (tea and snacks bar).

  Following the footsteps of Pantaloon, Vishal retail is also planning to start saloons within its 120 odd stores premises.

  Shoppers Stop has forayed into Café Brio, DesiCafé (coffee shops) and Stop & Go (airport retailing), Crossword (bookstores), MAC (high end cosmetics stores), Mothercare and Spas within its stores to make consumer spend more time in stores and encourage them to spend more.

  The retailers are not only rolling out new concepts but also branding their stores. For example, Pantaloon and Tata have branded their electronics stores as ‘e-zone’ and ‘Croma’ respectively.

  The presence in niche segments not only diversifies the risk but also helps to grab bigger chunk of retail consumer spending.

  The above mentioned new segments are over and above the existing presence in Lifestyle and Value retailing.

Slide 24 of 44


…Developing Strong Back-End …

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Supply Chain & Systems Constraints

Shoppers Stop Vishal Retail Limited Pantaloon Retail India Limited Trent India Limited

Shoppers Stop has 4 technology led Dedicated Distribution Centers which cover 180,000 sq ft. They are responsible for supplying merchandise to all the stores situated in India

Vishal Retail Limited has overall garment manufacturing capacity of 4.5 mn pieces per annum

Pantaloon operates its supply chain through wholly owned subsidiary Future Logistics

Trent is planning to give more emphasis on establishing regional sourcing arrangements as the company feels national sourcing is not a viable option

The company does not have back storage area in any of their stores

Vishal Retail Limited owns 29 warehouses comprising of 1.1 mn sq ft area

As of June 2007, the company has 2 mn sq feet warehouse space which consists of 1 Master Distribution center (MDC) and other Regional Distribution Centers (RDC)

It also has plans to have various tie-ups which include franchise arrangements

Shoppers stop has outsourced Distribution Center management and regional service providers independently manage them

It has 8 key distribution centers and fleet of 98 trucks and lorries

In 2006, it has implemented GPS for outbound deliveries which is expected to be implemented nationally in near future

NA

All the Distribution Centers are connected online which are further connected to the central systems

All company locations are connected through VNC (Virtual Network Connection)

Future Logistics has fleet of 200 dedicated trucks

NA

Shoppers Stop was the first retailer who implemented the state of the art ERP JDA which enables Auto Purchase upon reaching minimum level, Auto Replenishment, Warehouse Management System, Perpetual Inventory Control System

It also has Video Conferencing and hotline facilities

The company plans to have 2.5 mn sq ft of operational warehouses by FY 2008 which is expected to rise up to 7.5 mn sq ft by 2010-11

NA

The company uses Oracle financials for accounting

The company has recently completed full implementation of production and retail modules of SAP which incured expenditure of INR 75 mn

It will also build 4 Mega Merchandising Hubs (MMH) of about 250,000 square feet each

NA

Shoppers Stop has over 150 partners connected online

NA The company has implemented SAP at all its MDCs, RDCs and DCs which enable real time data management and reporting, standardization

NA

It also has online retailing solution from Novador- Canada

NA Virtual Private Network (VPN) is available at all the centers which allows close monitoring

NA

Slide 25 of 44


Other Players in the Market

Aditya Birla Retail Aditya Birla Retail's expansion plans to add about 1,000 supermarkets and hypermarkets at a cost of USD2-2.5bn over a period of three years. These stores will employ about 60,000 people. With plans to open 150 CDIT (consumer durables and information technology) stores by 2010, the company has tied up with Godrej, Videocon, LG and Samsung, among others. Madura Garments Lifestyle Retail company, a 100% subsidiary of AV Birla Nuvo, has plans to open 12-14 stores to meet the fashion needs of the urban Indian male customers. The new store chain, The Collective, will be opened initially in Bangalore, Mumbai and New Delhi.

Subhiksha Subhiksha has plans to add 1,000 stores by December 2008. These stores will be opened primarily in Tier I & II cities.

Café Coffee Day (CCD) CCD plans to open 310 new cafes by the end of FY09 to increase the tally to 900 cafes.

Spencers Spencers plans to open 100 small stores and 20 hyper markets in FY 2009. The company will invest INR100 mn on each hyper market store and INR30-40 mn on each small store.

Indiabulls Real Estate Limited

Indiabulls Real Estate Ltd has plans to invest INR10 bn to expand its retail business in the next two-and-a-half years.

Koutons Koutons will expand its retail business with investments of USD70.79 bn. It will open 200 large-format Koutons Family Stores and add another 1,400 stores in modern retail format within the next 18 months.

Videocon Retail Videocon Industries will invest INR8 bn in the next three years to expand its electronic retail format, Next Retail, and Planet M, the mobile, music, entertainment and lifestyle chain.

Salarpuria Group Salarpuria has plans to launch two malls in Bangalore at about INR6 bn and also plans to build malls in Hyderabad and Jaipur.

Source: Industry Sources, Company Reports, CLSA …ot

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We have considered three peers of Pantaloon Retail India Limited from the Indian retail industry. These are Shoppers Stop, Trent Limited and Vishal Retail. Vishal Retail was listed in 2007.

Peer Companies Analysis

Peer Companies Comparison

Source: Reuters and Riedel Research Estimates NM =Not Meaningful * Note: M Cap as on August 29, 2008.

Particulars Pantaloon Shoppers Stop Trent Limited Vishal Retail

*Market Cap (INR mn) 49,961.0 46,305.6 9,993.1 8,632.6

Revenue growth (YOY) 73% -73% 3% 62%

PAT (INR mn-FY08) 1,369.8 (6.73) 340.33 406.9

EPS (FY08) 8.63 0.76 18.31 18.95

ROE % (FY08) 11% 2.5% 5% 15%

ROIC% (FY08)I 9% NM 21% 15%

PE (FY08) 41.5x NM 27.9x 20.3x

One Year Absolute Stock Return -29.9% -43.8% -35% -22.4%

Riedel Research Call BUY BUY BUY BUY

As compared to its peers, Pantaloon has recorded the highest revenue of about INR1,199.9 mn, with a YOY growth of 87%. The Company has given excellent Return on Investments (11%) and has performed well on the bourses as compared to other players.

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Recent Performance

Recent Quarterly Performance (Figures in INR mn)


Particulars Q3FY08 Q2FY08 Q1FY08 Q4FY07 Q3FY07

Net Sales 13,543.4 12,267.5 10,864.4 10,196.4 8610.5

Consumption of RM 9,526.1 8,543.2 7,445.9 7,208.2 5,808.8

Employee Cost 724.7 699.8 641.8 578.9 536.6

Other Expenses 2151.2 1,928.4 1,820.5 1,841.7 1,662.3

Total Operating Expenses 12,402.0 11,171.4 9,908.2 9,628.8 8,007.7

EBITDA 1,141.4 1,096.1 956.2 567.6 602.7

Interest Cost 428.7 417.8 351.6 336.7 228.9

Depreciation 223.2 204.1 152.7 126.1 93.3

Other Income 16.5 13.2 7.3 177.9 9.4

PBT 506.0 487.4 459.2 282.7 289.9

Tax 185.0 170.9 162.3 95.9 102.8

PAT 321.0 316.5 296.9 186.8 187.2

EBITDA Margin 8.4% 8.9% 8.8% 5.6% 7.0%

EBIT Margin 6.8% 7.3% 7.4% 4.3% 5.9%

Net Profit Margin 4.0% 4.2% 4.1% 3.1% 3.3%

During last five quarters, Pantaloon has registered an excellent revenue performance on the back of huge retail space addition within the value and lifestyle retail formats. In Q3FY08, revenue grew by a whopping 57.3% YOY to INR13.5 bn against INR8.6 bn in Q3FY07, and recorded a sequential growth of 10.4%. Similarly, profitability margin improved at the EBITDA level, i.e. to 8.4%, due to a significant fall in other expenses (as a percentage of net revenue). However, increase in depreciation charges (as a percentage of net revenue) and finance charges and no improvement in other income exerted pressure on the net profit margin. The net profit margin increased marginally by 20 bps to 2.4% against 2.2% in Q3FY07.


Slide 28 of 44


Retail Space Projection as in September 2008 Retail Space Projection as in June 2008

Financial Projections

Financial Projections and Key Assumptions

Source: Riedel Research Estimates

After considering the Company’s position in the retail industry, the competitive landscape and other industry growth factors, we expect the Company revenue to grow at a CAGR of 28.9% to INR199.7 bn during FY08-13. Moreover, during this period operating margin is expected to improve from 5.5% in FY07 and hover in the range of 6%-6.5%, as the Company will be able to cash in on the economies of large scale.


Retail Space Addition Projections (in mn sqft)

Following meetings with the Company management on expansion plans, we have slightly modified the retail space addition for future years. The Company plans to add about 4-5 mn sq ft of retail space (both lifestyle and value) per year. Hence we have marginally upgraded the additional retail space within both formats. While management will have an option to fund the growth plans though debt and equity, we have assumed debt to fund the growth plans, resulting in high interest cost.

Slide 29 of 44


Revenue Model

Retail Space Projections from FY09-13E


Particulars FY09E FY10E FY11E FY12E FY13E

Lifestyle Retail

No. of additional stores 63 77 91 105 117

Retail space addition during the year (mn sqft) 0.60 0.55 0.65 0.65 0.70

Total Retail Space 2.55 3.10 3.75 4.40 5.10

Value Retail

No. of additional stores 317 414 515 635 759

Retail space addition during the year (mn sqft) 2.27 2.31 2.34 2.72 2.76

Total Retail Space 7.98 10.29 12.63 15.35 18.11

  For revenue projections, we have considered factors such as the Company’s past and future expansion strategy, the average lag time involved in starting a new store and the industry scenario.

  We anticipate that the Company’s retail space within the lifestyle format will touch 5.1 mn sqft by the end of FY13. During the period number of store additions will reach 117 i.e. 96 Pantaloons and 21 Central stores.

  However, retail space under its value format will grow at a much robust pace, based on expansion plans. We anticipate the total retail space to touch 18.1 mn sq ft by the end of FY13E. Number of stores under the Big Bazaar format are expected to stand at 275 outlets whereas number of Food bazaar outlets will touch 484 by FY13.

Slide 30 of 44


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In our valuation, we have assumed a discount rate of 10.2%, derived on the basis of Weighted Average Cost of Capital (based on risk free rate of 8.9%, India Equity Premium of 5.6% and a beta value of 0.966). Average Borrowing rate is assumed at 10.0%.

WACC Calculations (Figures in INR mn)

Source: Company reports and Riedel Research Analyst estimates

Particulars Figures

1. Risk Free Rate 8.9%

2. Equity Premium 5.6%

3. Company Beta 0.966

4.Cost of Equity... 1+(2 *3) 14.3%

Average Borrowing rate 10.0%

Tax Rate 33%

5. Cost of Debt after Tax 6.7%

6. Book Value of Equity 10,921.8

7. Book Value of Net Debt 12,995.8

8. Total Capital 23,917.6

WACC ( 4 *6 / 8 ) + ( 5 * 7 / 8 ) 10.2%

FCF Calculations (Figures in INR mn)


The exhibit below shows free cash flow of the Company.

Particulars Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

EBIT 3,354.8 5,038.5 6,410.5 8,451.5 10,695.8 12,888.4

Tax Rate 33.7% 33.7% 33.7% 33.7% 33.7% 33.7%

EBIT (1 -Tax rate) 2,223.8 3,340.0 4,249.5 5,602.4 7,090.1 8,543.6

Add: Depreciation 761.1 1,076.4 1,405.3 1,762.5 2,172.9 2,609.1

Less: Capex 5,013.7 5,255.0 5,481.6 5,953.6 6,841.2 7,268.7

Incr/(Decr) in Working Capital 3,607.3 1,453.8 1,299.4 1,355.8 3,406.5 2,746.5

Free Cash Flow to Firm (5,636.0) (2,292.5) (1,126.3) 55.5 (984.7) 1,137.5

Slide 31 of 44


SOTP Valuation: Target Price at INR562.1

On SOTP (sum of the parts) basis, we valued Pantaloon’s standalone business at INR404.8, whereas the value of investment in subsidiaries and associates stands at INR105.4. At 10.2% WACC, we give a one year forward target price of INR562.1.

Sensitivity Index (Growth Rate–Beta Matrix)

Beta value

LT Growth Rate 0.866 0.916 0.966 1.016 1.066

3% 502.5 491.8 481.4 471.5 461.9

4% 541.4 528.3 515.7 503.6 492.1

5% 595.0 578.2 562.1 546.9 532.4

6% 674.7 651.4 629.6 609.0 589.7

7% 807.2 771.1 737.9 707.3 679.0

Details Value in INR Per Stock

Pantaloon’s Standalone Business INR404.8

Subsidiaries and Associates INR105.4

Target Price at 10.2% WACC INR562.1

SOTP Valuation


We have assumed a long-term growth rate of 5%. The sustainable ROIC is assumed at 15%. The maximum value derived under the sensitivity matrix is INR807.2 (growth rate 7% and beta value of 0.866) and the minimum value is INR461.9 (growth rate 3% and beta value of 1.066). Our target price of INR562.1 is based on 5% growth rate and beta value of 0.966.


Slide 32 of 44


Recommend a ‘Buy’

  We at Riedel Research are bullish on the India organized retail sector. There is a huge opportunity that is yet to be explored. Going forward, we believe, factors such as the low penetration rate, favorable demographics, strong economic growth, and easy availability of credit would lead to huge growth in the Indian retail sector.

  The level of penetration of organized retail in India was estimated at 6%-8% in 2007. We expect this sector to register a strong growth and achieve a penetration level of 15% by 2013. We view the Indian retail sector as a multi-year investment opportunity.

  As there exist execution risks, with the sector still at an early stage of development, we would recommend a diversified investment strategy.

  Pantaloon’s well-chalked out plans to expand its geographical footprint and increase its target audience and the Company’s ability to provide an exhaustive range of products under one roof at most competitive prices should drive growth despite intensifying competition.

  Apart from having the first mover advantage, the Company has been able to leverage on its multi-formats-multi brand stores, secure prime locations at the best possible prices and command a strong bargaining power with suppliers, which provide it an edge over its competitors. Furthermore, the roll out of new stores under different formats and the benefits enjoyed from economies of scale have resulted in margin expansion, and has improved profitability of the Company.

  Pantaloons’ ability to understand the Indian consumer psyche, its experience in managing growth, massive expansion plans, excellent execution capabilities, sound financial performance and huge growth opportunities (offered by the organized retail boom in India) augur well for the Company’s overall future prospects.

  The stock trades at less than 8x 2010 EV/EBITDA. We maintain our positive outlook on the stock and recommend a BUY with a target price of Rs 561, an upside of 65% from current levels.

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Management Q&A

  Can you elaborate on Pantaloon Retail’s past growth and reasons for early success?

Pantaloon Retail was started in October 1987 as a textile retailing company. Over the years, the Company gradually moved towards garment retailing by opening various retail formats and multi-brand outlets. The first Pantaloon store was opened in 1997 in Kolkata. The Company which started as a Menswear Company in 1987, later ventured into all segments. The two main factors that led to the Company’s tremendous growth are speed and imagination. Speed represents the pace at which we are moving across the market segments, products and geographies, while imagination represents our emphasis on innovation. Our main idea is to capture a larger pie of the consumption space (about 70% of consumer spending). We believe in thinking how an Indian consumer thinks. Though we did not enjoy the first mover advantage, however, Pantaloon has became a INR1 bn business in 4 years, Big Bazaar in 2 years and Food Bazaar in 1. Every store of Central generates INR1 bn business. Pantaloon through its concentrated expansion plans has grown from about 50,000 sq ft business to about 9 mn sq ft business as of today.

  What are your views on the competitive scenario then, now and in future, specially from Wal-Mart and Reliance?

The growth and opportunity in the Indian retail sector has attracted several domestic business conglomerates and multi-national companies to start their operations. The entry of new players has compelled local and unorganized players to improve their operations. We face competition in each line of business. However, we feel that with large potential opportunities in the Indian retail sector and our knowledge of inherent challenges and ground realities of retailing in India, our expansion plans will not be affected by the entry of new players. In fact, entry of new players will provide more choice to consumers and will help to expand and develop the market.

  Has the current economic and market scenario affected your expansion plans? And what are the reasons for the delay in expansion?

The current market situation has not severely impacted Pantaloon’s expansion plans. There is about a month’s or two months’ delay in setting up of retail formats. The main reasons for that were delays in delivery of properties by real estate developers to us, and delays in malls getting ready.

Slide 34 of 44


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Management Q&A

  What are the reasons behind increase in rentals? What are the Company’s strategies to counter this?

Growing urbanization in the country and increasing influx of new players in the retail industry have boosted the demand for retail real estate. This resulted in a demand-supply mismatch with rentals going up. We have a dominant position in the industry and mall owners prefer us as the anchor clients. We have been able to keep our rental costs increases low.

  What are the average rentals for the Company?

The average rentals paid by the Company are about INR50-60 per sq ft per month, maximum being INR60.

  What are the major costs associated with retail business?

For any retail business, there are three major costs - real estate, power and people. For Pantaloons, rising employee cost is compensated by increasing productivity. Attracting and retaining key talent remains a challenge.

As regards the electricity cost, the rate defers from city to city. It ranges from INR4 to INR8 per unit, with higher rates in cities like Mumbai. The Company also caters to areas with inadequate power supply, which necessitates use of diesel generators. The average electricity consumption in 1 store is about 1 KW per 150 square feet per hour.

  Is the Company looking forward to any capital dilution?

The Company may dilute its capital in the coming two-three years.

  Is the Company planning to hive off Big Bazaar?

Though some talks were initiated by the management, nothing has been decided so far.

Slide 35 of 44


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Management Q&A

  Some details regarding the Company’s other business subsidiaries and units? Future Logistics and Future Generali (insurance)?

Future Logistics has been developed to meet the logistics, transportation and warehousing services requirements of the Company. It is currently expanding by shutting down smaller warehouses and moving into larger warehouses. Currently, the Company’s total warehouse area is about 3 mn sq ft. It intends to add about 2-4 mn sq ft for warehouse operations in the coming year. The subsidiary will provide services to Pantaloons as well as other companies.

Future Generali provides life and general insurance policies. About 22% of revenue is from mall insurance. We plan to sell our insurance policies through direct selling in our other various retail formats as well by other traditional methods. Our major focus would be on direct selling, which will enable us to capture all class of consumers that come to shop in our other retail formats.

Source: Corporate Office of Pantaloon Retail, Knowledge House, Mumbai, Riedel Research

Slide 36 of 44


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Company Description

Pantaloon Retail India Limited is a leading Indian retailer, offering retail solutions for five business segments - food, fashion and footwear, general merchandise, leisure & entertainment and home. The Company operates in the value and lifestyle segments of the Indian consumer market. It has more than 9 mn square feet of retail space in 61 cities across India.

The Company operates through its multiple delivery formats like fashion store formats under the Pantaloons brand, the seamless mall concept under the Central brand, hypermarket formats under Big Bazaar, food & grocery format under the Food Bazaar brand and the home segments solutions through formats like E-zone, Home Town and others.

The Company has also ventured into telecommunications retail and other lines of businesses such as wellness and beauty as well as books and music. Some of its other formats include Depot, Shoe Factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Star and Sitara. Its online venture includes a web-based portal, futurebazaar.com. Pantaloon Retail’s various retail formats include:

  Lifestyle Retailing

Pantaloons

Pantaloons is a chain of fashion outlets, which caters to the lifestyle segment covering an extensive variety of categories such as ethnicwear, casualwear, formal and party wear for men, women and kids. The store offers apparels that are trendy and in-fashion as per the popular demands. It retails external brands as well its own private brands including John Miller, Akkriti, RIG, UMM, Honey and others. Pantaloons stores are located in large number of cities across India. As of July 2008, the number of Pantaloons stores across India stood at 47.

Central

Central is a seamless mall where there are no separate shops, but space is allocated to brands, which they can run on their own. In Central, consumers can shop, eat and celebrate under one roof. Central offers numerous brands across all segments and categories including apparel, footwear, accessories for men, women and kids. It also houses exclusive range of music, books, food courts, coffee shops, pubs, dining restaurants, super markets and discotheques. Also, a dedicated space - Central Square - is assigned for product launches, events, exhibitions and shows. In addition, the mall has separate section for a variety of services such as travel, finance, investment, bill payments, insurance and others. As of July 2008, there were 7 Centrals operational in Bangalore, Hyderabad, Pune, Mumbai, Gurgaon and Vadodara.

Source: Pantaloons, Suburbs of Mumbai, Riedel Research

Source: Central, Suburbs of Mumbai, Riedel Research

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Company Description

  Value

Big Bazaar

Big Bazaar is a chain of department stores or hypermarkets, offering all types of consumer goods including general merchandise, home furnishings, crockery, cutlery, utensils, sports goods and others at a a reasonable price. The stores work on the economy model, offering the best “Value for Money” proposition for Indian consumers. About 91 Big Bazaar stores were in operation, as of July 2008.

Food Bazaar

Food Bazaar is a chain of large supermarkets catering to the eatables segment, offered at very economical and affordable prices. The store houses a blend of external as well as the Company’s private label brands such as Care, Tasty Treat, Fresh and Pure, and others. As of July 2008, there were about 136 Food Bazaar stores in India.

Source: Food Bazaar, Suburbs of Mumbai, Riedel Research

Source: Food Bazaar, Suburbs of Mumbai, Riedel Research

Slide 38 of 44


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Source: Book Depot, Mobile Bazaar, Consumer Durable, Electronics store (e-zone), Suburban Mumbai, Riedel Research

Company Description

  Home Solutions

Home Solutions Retail (India) Limited, a subsidiary company, caters to the home building and improvement market in India. It offers a wide variety of product and service categories, required for home building and improvement. Various product categories include consumer durables & electronics, furniture, home furnishings and decor and others. Its retail formats include E-Zone, Electronics Bazaar, Furniture Bazaar, Home Town and Collection-i.

  E-Zone & Electronics Bazaar- Consumer durables & electronics items are offered by E-Zone (Lifestyle segment) and Electronics Bazaar (Value segment). As of July 2008, there were 27 E-Zone stores and about more than 60 Electronic Bazaar stores.

  Collection-i & Furniture Bazaar- In the furniture, furnishings and home improvement segment, the Company operates through retail formats like Furniture Bazaar and Collection-i. Furniture Bazaar are either located within Big Bazaars or are as stand-alone outlets, while Collection-i stores are typically stand-alone, offer complete ‘lifestyle’ solutions. As of July 2008, there were about 10 Collection-i and 10 Furniture Bazaar stores.

  Home Town- Home Town provides all solutions for home building under one roof. Home Town is divided into three sections- exhibitions, markets and services. The exhibition section has live displays of various rooms such as living room, dining room, bedroom, kids' room, kitchen & bathroom. The market section houses variety of products required for kitchens, bedrooms, dining and others. While, the services section offers services such as door delivery, installation, supply of carpenters, electricians and others. Home Town offers products from all major manufacturers across different product categories such as tiles, furniture, sanitary and others. As of July 2008, there were about 6 Home Towns across India.

Slide 39 of 44


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Share Holding Pattern

Promoters and Promoter Group’s stake constitute about 46.5%, while shareholding of persons in the category “Public” is about 53.5%. Bennett, Coleman and Company Limited of India holds 5.48% stake, which is the single largest shareholder in the public category.

Shareholding Pattern as on June 30, 2008

Source: Company Website

Source: Big Bazaar, Suburbs of Mumbai, Riedel Research

Slide 40 of 44



Future Group

Pantaloon Retail is the flagship company of Future Group, which is a leading business group in India catering to the entire consumption space.

  Future Group

Future Group is India’s leading business group, having its presence across all consumer segments including retail, asset management, consumer finance, insurance, retail media, retail spaces and logistics. The Company operates in 61 cities and 65 rural locations across India. Pantaloons, Big Bazaar, Central, Food Bazaar, Home Town, eZone, Depot, Future Money, futurebazaar.com and others are some of the major retail formats of the Group.

Future Group includes:

  Future Retail- covering all retail business

  Future Capital- covering consumer finance, insurance and advisory services

  Future Brands- covering all brands owned and managed by the Company

  Future Space- which includes development and management of real estates

  Future Logistics- which manages supply chain and distribution

  Future Media- which develops and manages retail media spaces.

Source: Corporate Office of Pantaloon Retail, Mumbai, Riedel Research

Slide 41 of 44


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Stake in Future Capital Holdings (FCH)

  Future Capital Holdings has forayed into various business segments including logistics, media, food retailing, footwear retailing, real estate, financial services, insurance etc. Out of these, many segments look quite promising, viz. logistics, insurance, food retailing and real estate. Moreover, all these segments are directly or indirectly related to the business model of Pantaloon Retail India and improvement in the business of FCH will definitely benefit Pantaloons. FCH’s presence in logistics will prove to be highly beneficial for Pantaloons, since logistics is the backbone of retail. For the retail business to flourish, the supply and distribution network should be in place.

  Moreover, the presence in consumer finance will give a boost to its formats such as e-zone, home solutions while the presence in real estate will help the Company to locate and secure commercial properties for opening new stores at reasonable costs.

  FCH, still in its nascent stage, is yet to achieve break-even and is incurring losses. However, with the kind of growth it has showcased, it appears that this entity will soon break even and make substantial profits. This will definitely add value to Pantaloon Retail India, since it holds 55% stake in FCH. We remain bullish about FCH’s performance in the coming years.

Source: Pantaloon, Cash Counter, Suburbs of Mumbai, Riedel Research

Slide 42 of 44



Major Subsidiaries

  Home Solutions Retail India Limited (HSRIL)

Home Solutions Retail offers different product categories including Consumer Durables & Electronics, Furniture, Home furnishing and decor, home improvement and home services. The Company has 73.32% stake in Home Solutions Retail India Ltd while ICICI Venture Funds holds about 15% and Kotak SEAF India Fund holds about 5% stake. ICICI venture and Kotak SEAF have together invested about INR1.20 bn in Home Solutions. Pantaloon promoters have also invested in the subsidiary through warrants. It operates retail formats including Home Town, Collection-i, Furniture Bazaar, Electronics Bazaar and e-zone.

FCH manages the financial service business of the Future Group. It is a holding company and manages assets worth over $1 bn, which are invested in developing retail real estate and consumer-related brands and hotels. Pantaloon Retail has about 78.25% stake in FCH. FCH’s subsidiaries include Kshitij Investment Advisory Company Limited (KIACL), Ambit Investment Advisory Company Limited (AIACL), Indivision Investment Advisory Limited (IIAL), Myra Mall Management Company Limited (MMMCL) and CIG Infrastructure Private Limited (CPIL).

  Future Logistics Solutions Limited (FLSL)

Future Logistics provides logistics, transportation and warehousing services. The Company has 100% stake in FLSL.

  Future Media (India) Limited (FMIL)

FMIL is engaged in creating media properties and offers active engagement to brands and consumers through its media properties such as Visual Spaces, Print, Radio, Television and Activation. Pantaloon Retail has 100% stake in FMIL.

  Pantaloon Food Product (India) Limited (PFPIL)

PFPIL is involved in the sourcing of food business for the Company. The Company has 100% stake in PFPIL.

  Foot-mart Retail India Limited (FMRIL)

FMRIL is 51% subsidiary company operating in footwear retail space. Liberty Shoes Limited holds the remaining 49%. It operates retail formats such as Shoe Factory and Pairs.

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Major Associates

  Talwarkars Pantaloon Fitness Private Limited (TPFPL)

It is a 50:50 JV between Talwarkars Better Value Fitness Private Limited and Pantaloon Retail. TPFPL is engaged in the business of setting up gymnasiums and dealing in fitness equipment and other health products.

  Staples Future Office Products Private Limited (SFOPPL)

SFOPPL is a JV between Pantaloon Retail and Staples Asia Investment Limited (subsisidary of Staples Inc, USA). The company provides office supplies, office equipment and other products.

  Planet Retail Holdings Private Limited (PRHPL)

PRPHL carries out retail sale and wholesale business of fashion, sports and lifestyle products through a chain of sportswear goods. It has license of international brands. The company has 49% stake in PRHPL.

  Pan India Food Solutions Private Limited (PIFSPL)

PIFSPL is a 50:50 JV between Pantaloon Retail and Blue Foods Private Limited and is in the business of restaurants and food courts.

  Alpha Future Airport Retail Private Limited (AFARPL)

It is a 50:50 JV between the Company and Alpha Airport Retail Holdings Private Limited. It is still in the stage of being fully operational and involves retailing of consumable products, foods and beverages at airport terminals world-wide.

  Gupta Infrastructure (India) Private Limited (GIIPL)

GIIPL is a JV with Gupta Coal India Limited and Cineline Entertainment Private Limited and is engaged in the business of development of infrastructure facilities. The Company has 19.38% stake in GIIPL. This is a special purpose vehicle to set up a retail mall at Raipur, Chatisgarh.

  Joint Venture with Axiom Telecom LLC, UAE

This is a 50:50 JV with Axiom Telecom LLC, UAE for sourcing and wholesale distribution of mobile handsets, accessories and setting up service centers and after service sales centers for mobile handsets in India.

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Pantaloon Retail India Limited - Riedel Research Retail India...discount stores which are extending...

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