Pantaloon Retail will have to gear up to the foreign competition

Revenue crosses Rs.4000 crore

Pantaloon Retail’s revenue during the year 2010-11 was at Rs.4097 crore and its net profit at Rs.76 crore. Now the festive season has begun with the approaching Diwali (I am writing this article one day before Diwali). The company is plagued with twin problems of rising debt and rising inventory. Companies in the same business namely Trent and Shoppers Stop have solved these problems in a better fashion, it seems. But to the credit of the company, its sales turnover and profit have increased consistently. But its debt burden has increased to Rs.4190 crore as on 30.06.11. The debt equity ratio of the company is at 1.2. The company has many subsidiaries like Future Ventures and Future Capital Holdings. The company’s subsidiaries are in varied sectors like retail, logistics, media and e-commerce. The company’s competitors have a better debt equity ratio of below 0.5. Because of this high debt burden, the company has to shell out more interest towards debt servicing. In 2011, it paid Rs.614 crore towards interest.

Inventory level is high

The other problem that is plaguing the company is also serious. Its inventory holding is very high. In the last one year, its inventory increased by 52% from Rs.2491 crore to Rs.3679 crore. High inventory means low cash flow. This means the company may not be able to finance its future expansion plans through its internal accrual. The company is planning to restructure itself by disposing off some loss making subsidiaries. The company wants to shut down e-zone stores, which are running at a loss. The company needs funds to do restructuring. How it will raise the required funds remains to be seen.

Pantaloon Retail is faster growing company

The company’s Managing Director is a well known person Kishore Biyani, who created a revolution in retail stores segment in India. In retail sector, Pantaloon Retail is the fastest growing company for the last six years. The only exception was in 2010-11 when revenue fell by 6%. The company has nine million square feet of space booked for future expansion activities. Pantaloon Retail’s plans to sell its stake in its financial services company Future Capital Holdings is on track. This was stated by the Managing Director Kishore Biyani to Dow Jones News Wires. But no time frame has been fixed for the sale. Pantaloon Retail has 54% stake in Future Capital. Kishore Biyani holds 7.4% stake in his personal capacity. Future Capital is engaged in the business of retail finance, trade finance services and corporate lending. Pantaloon Retail needs the fund from selling Future Capital for its expansion programmes and also to cut its debt. The company has many subsidiaries in sectors like textiles and media. If it exits from these ventures also, it can become a zero debt company.

FDI in retail sector will change equations

The government of India is thinking of and seriously considering allowing foreign direct investment (FDI) in retail sector. If this happens, it may upset the plans of the company. It also will bring a situation in which companies like Pantaloon Retail will have to re-plan and re-adjust their strategies in tune with the changing situation. This calls for innovation and strategic planning coupled with prefect execution. The company’s expansion in nine million square feet of space in niche areas will turn out to be advantageous in negotiating tough competition that will be posed by the foreign entrants as well as its Indian competitors. Moreover the foreign entrants will have to fix space for their operations. There is an acute shortage of quality retail space. Garment retail business is a rewarding business in India with good profit margins. In the next three years, Pantaloon Retail is going to roll out 50-60 stores at the national level. This will double its number of stores from the present 60 to 120. The company is focusing on South India, which it considers as an important market. South India accounts for 20% of the sales turnover of the company. The company expects South India to be its fastest growing market in the next few years. Nationally, the company is growing at 35% p.a. The company is expecting to put up a growth of 50% in the South.

Company quotes lower price than its competitors to the customers

Because of the vertical integration of the company, it has been able to offer the same brand at much lower price to the customer than its competitors. The company has found out through experience that a shop that wishes to cater to the needs of the customer to the fullest extent should have a floor space of 25000 ft – 40000 ft. Pantaloon Retail, belonging to the Future Group, plans to open shops in big cities in South India like Kochi, Mysore, Vizagapatnam, Vijayawada, Thiruvananthapuram, Salem and Madurai among other places.


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