Pantaloon Retail India Limited
A ‘Bazaar’ to Invest in - BUY
September 04, 2008
Index
index
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
Pantaloon Retail India Limited
Slide 2 of 44
Country
India
FY Jun. (in INR mn)
Region
Asia
Net Revenue
Ticker (Reuters/ Bloomberg)
(PART.BO)
EBITDA
Sector
Consumer
EBITDA Margin
2008E
2009E
2010E
32,367.4
56,114.2
79,335.9
105,457.7
2,156.0
4,115.8
6,114.8
7,815.7
6.7%
7.3%
7.7%
7.4%
8.18
8.63
14.38
18.61
Industry
Retail
EPS
Mkt. Cap
Large
CFPS
10.69
13.42
21.16
27.04
FV/EBITDA
28.4x
14.9x
10.0x
7.8x
P/E
41.6x
39.5x
23.7x
18.3x
Price Performance
2005
2006
2007
YTD
Absolute
158.8%
21.6%
97.9%
-59.1%
Relative
118.1%
-25.2%
52.4%
-30.9%
Investment Style
Up/ Downside (to target price)
Report Type
Recommendation
financial summary
2007A
52-week Range
Dividend/Yield
Market Cap (USD mn)
3M Avg Daily Value (USD mn)
Growth
65.1%
Re-initiation
Buy
875-317
0.2%
1,137.0
1.3
Est. 5-year EPS Growth
37.8%
Controlling Shareholder/%
46.5%
L-T Debt/Equity Capital
ROE (FY09E)
Current Book Value/ Share (FY08E)
Price/Book
2 Year Price Chart
119.0%
11.2%
114.7
3.0x
Source: Reuters, Company Reports and RRG Estimates, Price performance relative to Sensex, CFPS = (Net Profit + Depreciation) / No. of shares
Pantaloon Retail India Limited
Slide 3 of 44
Pantaloons – Invest in the Pioneer Transforming India’s Small
‘Bazaars’ into ‘Big’ & ‘Organized’ - BUY
 
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.
executive summary
 
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.
Pantaloon Retail India Limited
Slide 4 of 44
Low Organized Retail Penetration in India
the opportunity
 
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.
Comparative Penetration of Organized Retail
Improved
from 3% in
2004 to
6-8% in
2007
Source: Ernst & Young Retail News/Spring 2006 Report
Source: Standalone Grocery Store in Mumbai,
Riedel Research
Source: Standalone Apparel Store in Mumbai,
Riedel Research
Pantaloon Retail India Limited
Slide 5 of 44
favorable demographic & income trends
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.
% Share of Population in Each Income Bracket
Source: Mckinsey Report
GDP (PPP) of India
Source: IMF
Pantaloon Retail India Limited
Slide 6 of 44
Along with Rising Urbanization & Easy Availability of Credit…
driving consumption
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.
Aggregate Urban Consumption
Source: MGI India Consumer Demand Model, v1.0
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.
Retail Portfolio of Banks
Source: RBI, ICICI Bank Presentation
Pantaloon Retail India Limited
Slide 7 of 44
status of organized retail
Organized Retail Penetration Likely to reach 15% by 2013
 
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.
 
Share of Organized Retail In India
Source: omretail.com
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.
Source: Coffee shop in a mall of suburban Mumbai,
Riedel Research
Source: Organized retail, Apparel Stores, Pantaloons, Suburban Mumbai, Riedel Research
Pantaloon Retail India Limited
Slide 8 of 44
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.
the leading retailer
 
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
Source: Lifestyle Retail (Pantaloons) and Value Retail (Big Bazaar), Suburban Mumbai, Riedel Research
Pantaloon Retail India Limited
Slide 9 of 44
First to Identify and Focus on Value Retail
It’s all about knowing the people
 
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.
 
The concept designed and devised by the
management is ‘Big’ and so is the branding of
the store done. The flagship value retail chain
Swanky lifestyle stores
Value retail draws huge
footfalls
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.
Source: Lifestyle and Value Retail, suburban Mumbai, Riedel Research
Pantaloon Retail India Limited
Slide 10 of 44
insulated from foreign competition
Moving Strategically
 
The lifestyle retail segment comprises of mainly luxury
Penetration of Indian Organized Retail in various categories
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.
 
Source: omretail.com
Increasing share of value retail
Indian Government allows 51% FDI in single brand retail
Lifestyle
contribution to
total revenues
reducing
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.
Source: Company Report
Pantaloon Retail India Limited
Slide 11 of 44
Targeting the Masses
 
The Company has planned to capture the lower end of
identifying other segments
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
Lifestyle
provide amenities such as air-conditioning, unlike other
Value /
Lifestyle
value and lifestyle formats.
 
The format does not even offer a carry bag to its
Value
KB’s Fairprice
customers so as to keep the costs low.
 
The products range from food products to apparels, but
Bottom of the Pyramid
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
Source: Company Presentation
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.
Source: Company Own Brand, KB Fair Price, Mumbai Suburbs, Riedel
Research
Pantaloon Retail India Limited
Slide 12 of 44
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.
1st in Bangalore
1st in Mumbai
Brand
Centric
Distribution
Centric
Retail
Centric
Knowledge
Centric
2008
2007
2006
2005
2004
2003
1st in Bangalore
2002
2001
2000
1999
1st in Kolkata
1998
1997
1996
1st in Kolkata
1995
1994
1993
1992
1991
1990
BARE
1989
1988
Product
Centric
Pantaloon
Shoppe
(Franchisee
Format)
IPO (May)
Manz
Wear Pvt.
Ltd.
1987
possess the management bandwidth
Demonstrated Excellent Execution Capabilities
Design
Centric
Source: Company Reports, Riedel Research
Pantaloon Retail India Limited
Slide 13 of 44
presence across all retail formats
Has a Pan India Presence
61 cities, 9 mn
sqft.
Delhi
Delhi
Kolkata
Kolkata
Mumbai
Bangalore
Mumbai
Chennai
Bangalore
Chennai
Revenue Break up by Geography (FY08E)
More
Pantaloons
Shoppers Stop
Vishal Mega Mart
Trent
Source: Company Websites, Riedel Research Estimates
Pantaloon Retail India Limited
Slide 14 of 44
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
to capture the opportunity
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.
Retail Space Addition
Source: Company Reports and Riedel Research Estimates
Source: Big Bazaar, Suburbs of Mumbai, Riedel
Research
Pantaloon Retail India Limited
Slide 15 of 44
We Don’t See Any Issues of Space Availability
no issue of space availability
 
 
 
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
2006
(Current)
2007
(New)
2008
(New)
2009-10
(New)
2010-11
(New)
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
Mall Space Planned
Area (Mn. Sq.ft.)
Source: FICCI Report, Technopak Analysis
Malls in Major Cities in India
Source: Shoppers Stop Presentation
Pantaloon Retail India Limited
Slide 16 of 44
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.
bargaining strength
 
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
Pantaloon Retail India Limited
Slide 17 of 44
supply chain management & logistics
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
Pantaloon Retail India Limited
Slide 18 of 44
the risks
…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.
Pantaloon Retail India Limited
Slide 19 of 44
Slowing Same Store Sales
 
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.
continue
Same Sales Growth % (Since Jan 2006)
Source: Company Reports
Source: Central Mall, Suburbs of Mumbai, Riedel Research
Pantaloon Retail India Limited
Slide 20 of 44
Major Competitors
 
Source: Suburban
Mumbai, Riedel Research
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.
competitive landscape
 
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.
 
Source: Badarpur, Delhi,
Riedel Research
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).
Source: Suburban
Mumbai, Riedel Research
Pantaloon Retail India Limited
Slide 21 of 44
All Major Players have Strong Expansion Plans…
…ready for growth
Future 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.
Pantaloon Retail India Limited
Slide 22 of 44
…With Presence Across the Main Formats
Retail Sector Classification
Retail Format
… presence across formats
Departmental Stores
Food and General
Merchandise Stores
Specialty Stores
Group name
Store brands
Number of stores
Raheja Group
Shoppers Stop
24
Pantaloon Retail
Pantaloon, Central
41
Tata Trent
Westside
29
Reliance
Reliance Trends
Pantaloon Retail
Big Bazaar
Pantaloon Retail
Food Bazaar
136
Reliance Retail
Reliance Fresh
600
Tata Trent
Star Bazaar
Vishal Retail Limited
Vishal Mega Mart
Reliance Retail
Reliance Mart
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
3
91
4
100
3
Source: Industry
 
Presence in multiple formats synergizes the growth of overall business and diversifies the risk associated with it.
Pantaloon Retail India Limited
Slide 23 of 44
… developing some niche segments
…Also Foraying into Niche Segments
 
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.
Pantaloon Retail India Limited
Slide 24 of 44
…Developing Strong Back-End
…investing in the back-end
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 In 2006, it has implemented GPS for
of 98 trucks and lorries
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
Source: Company Reports
Pantaloon Retail India Limited
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
…other key players
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
Indiabulls Real Estate Ltd has plans to invest INR10 bn to expand its retail business in the next two-and-a-
Limited
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
Pantaloon Retail India Limited
Slide 26 of 44
Peer Companies Analysis
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 Comparison
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%
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%
41.5x
NM
27.9x
20.3x
-29.9%
-43.8%
-35%
-22.4%
BUY
BUY
BUY
BUY
competitive landscape
PAT (INR mn-FY08)
PE (FY08)
One Year Absolute Stock Return
Riedel Research Call
Source: Reuters and Riedel Research Estimates NM =Not Meaningful * Note: M Cap as on August 29, 2008.
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.
Pantaloon Retail India Limited
Slide 27 of 44
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
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
12,402.0
11,171.4
9,908.2
9,628.8
8,007.7
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%
6.8%
7.3%
7.4%
4.3%
5.9%
4.0%
4.2%
4.1%
3.1%
3.3%
Consumption of RM
Total Operating Expenses
quarterly review
EBITDA
EBIT Margin
Source:
Company Reports
Net Profit Margin
Source: Company Reports
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.
Pantaloon Retail India Limited
Slide 28 of 44
Financial Projections
Financial Projections and Key Assumptions
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.
Source: Riedel Research Estimates
Retail Space Addition Projections (in mn sqft)
Retail Space Projection as in September 2008
Retail Space Projection as in June 2008
Source: Riedel Research Estimates
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.
Pantaloon Retail India Limited
Slide 29 of 44
Revenue Model
Retail Space Projections from FY09-13E
Particulars
FY09E
FY10E
FY11E
FY12E
FY13E
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
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
Lifestyle Retail
No. of additional stores
Value Retail
Source: Riedel Research Estimates
 
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.
Pantaloon Retail India Limited
Slide 30 of 44
Valuations
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%.
The exhibit below shows free cash flow of the Company.
WACC Calculations (Figures in INR mn)
discounted cash flows
Particulars
FCF Calculations (Figures in INR mn)
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%
Source: Company reports and Riedel Research Analyst
estimates
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
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
(5,636.0)
(2,292.5)
(1,126.3)
55.5
(984.7)
1,137.5
Tax Rate
Free Cash Flow to Firm
Source: Riedel Research Estimates
Pantaloon Retail India Limited
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.
SOTP Valuation
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
Source: Riedel Research Estimates
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
Source: Riedel Research Estimates
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.
Pantaloon Retail India Limited
Slide 32 of 44
beginning of multi-decade opportunity
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.
Pantaloon Retail India Limited
Slide 33 of 44
Management Q&A
what management says
 
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.
Pantaloon Retail India Limited
Slide 34 of 44
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?
continue
Though some talks were initiated by the management, nothing has been decided so far.
Pantaloon Retail India Limited
Slide 35 of 44
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.
continue
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
Pantaloon Retail India Limited
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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
lifestyle retail
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.
Source: Pantaloons, Suburbs of Mumbai,
Riedel Research
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: Central, Suburbs of Mumbai,
Riedel Research
Pantaloon Retail India Limited
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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
Source: Food Bazaar, Suburbs of Mumbai,
Riedel Research
value retail
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
Pantaloon Retail India Limited
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Company Description
 
Home Solutions
e-zone, furniture bazaar….
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.
Source: Book Depot, Mobile Bazaar, Consumer Durable, Electronics store (e-zone), Suburban Mumbai, Riedel Research
Pantaloon Retail India Limited
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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.
owned by
Shareholding Pattern as on June 30, 2008
Source: Company Website
Source: Big Bazaar, Suburbs of Mumbai, Riedel
Research
Pantaloon Retail India Limited
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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
Source: Company Reports
Pantaloon Retail India Limited
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subsidiaries add value
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
Pantaloon Retail India Limited
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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.
Source: Company Reports
Pantaloon Retail India Limited
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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.
Pantaloon Retail India Limited
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