Grab The Goody Bag

Keeping the festive spirit in mind, this week, ETIG takes a look at retail sector biggies, Pantaloon Retail and Shopper's Stop. Whether you're an aggressive shopaholic or a cautious window-shopper, there's something for everyone here. Supriya Verma Mishra does a retail check

PANTALOON RETAIL
Beta: 0.92 Institutional Holding: 12.6% Dividend Yield: 0.23% P/E: 24.87 M-Cap: Rs 3,133.9 cr CMP: Rs 202.45 RoCE (FY08): 10.58% PAT Margin (FY08): 0.4% OPM (FY08): 3.12%
    PANTALOON Retail is the only company that can truly be called a pan-India retailer with a format to suit almost all shopping stereotypes, from bargain-hunters to brandconscious consumers.
    Promoted by Kishore Biyani, the company is present in segments like food, fashion, furniture & furnishings, consumer electronics, books, music, health, wellness & beauty, general merchandise, communication products, e-retailing, leisure & entertainment and fund management.
BUSINESS: Pantaloon started as a garment manufacturer, and currently operates over 7.8 million sq ft of retail space spread over India's top 40 cities. Its latest addition is a large format, lowcost, complete home solutions model, under Home Solutions Retail.
    The company operates 41 Pantaloon, seven Centrals, 96 Big Bazaar and 137 Food Bazaar stores. Its other formats include Depot, Health & Beauty Malls, E-Zone, Furniture Bazaar, Home Town, KB's Fair Price, Collection i and its online retail format, futurebazaar.com.
    It currently has six Home Town stores, 27 EZone stores, four Collection i and 90 Furniture Bazaar outlets. KB's Fair Price stores have also been a great success and the company has opened 100 such stores in just 10 months.
    Pantaloon's long-term strategy is to capture around 75% share of the consumer's wallet. About 65-70% of the company's revenue comes from the value retailing business, while the rest comes from the lifestyle segment. Big Bazaar is the company's value retail format and Pantaloon Fashions is its department store brand.
    With its innovative promotion policies, the company has been able to turn non-buying events into major selling days. For example, Pantaloon's Independence Day promotion resulted in record sales of Rs 350 crore over five days.
FINANCIALS: The company's turnover has surged from Rs 285.3 crore in FY02 to Rs 5,048.9 crore in the financial year ended June '08. During the same period, profit after tax (PAT) has jumped from Rs 7 crore to Rs 126 crore. The company earlier had a huge inventory which comprised 28% of its sales. However, due to the change in its accounting policy from 'retail price less mark-up' to a more conservative 'lower of cost or net realisable value', the company is now at par with its peers.
    Pantaloon estimates that its topline will touch the Rs 30,000-crore mark by the year ending June '12. Its market capitalisation increased from Rs 60 crore in FY00 to Rs 3,737.8 crore as on October 13, '08.
    Pantaloon Retail currently accounts for only 4% of the total retail marketing in the country, but Mr Biyani is targeting a lion's share of the $270-billion retail market in India.
    In this respect, the company initiated a cobranded product, ICICI Bank Big Bazaar credit card. The card is positioned as a loyalty programme to increase footfalls at its stores, besides increasing the transaction size. Initial reports suggest that the strategy seems to be working.
JOINT VENTURES/TIE-UPS: Pantaloon has already forayed into various sectors through acquisitions. It has picked up 15.73% in Galaxy Entertainment to enter the leisure & entertainment segment.
    It has also acquired the apparel brand Indus League and picked up 49% stake in the retail chain, Planet Sports. The latter owns the exclusive rights for Marks & Spencer, Debenhams and Guess stores in India.
    Pantaloon has also inked a memorandum of understanding (MoU) with Liberty Shoes, the country's leading shoe manufacturer, to venture into footwear retailing. Building on its expertise in the property segment, Pantaloon set up the first-ever retail
real estate venture capital fund — Kshitij Venture Capital Fund.
    The fund focuses on investing as well as managing shopping malls and complexes, especially in non-metro cities, and typically invests in projects that are likely to come on stream in 18-24 months. GROWTH DRIVERS/TARGETS: The company is gung-ho about its Home Solutions and Food Bazaar formats. Since organised retail penetration in the foods and beverage (F&B) segment is a mere 3-4%, the management expects this segment to grow at 15-17%.
    Due to its first-mover advantage, the company was able to lock in real estate at reasonable cost. With a 40% higher throughput in tier-1 cities, the company expects 60% of its revenue to be generated by these cities.
    Pantaloon is also focusing on its private labels, which already constitute 5% of the sales at Food Bazaar outlets.
    Out of 300 categories, 30 have private-label items, which constitute 20-25% of the sales in individual categories.
    Gross margins in the private labels business are 40-80% higher than that in other brands of the same category.
RISKS: Pantaloon has been expanding aggressively, but its main concern is the delay in delivery of stores or completion of malls.
    This impairs the company's financials as it increases carrying costs and builds up huge inventory on the balance sheet. Moreover, increasing competition is likely to eat into the company's customer base.
OUR TAKE: Pantaloon's ability to scale up its operations and live up to customers' expectation of 'isse sasta kahin nahin' has made it the No 1 retailer in the country. Its growth momentum is likely to continue on account of the huge opportunity to expand its value format. SHOPPER'S STOP
Beta: 0.38 Institutional Holding: 8.15% Dividend Yield: 0.77% P/E: — M-Cap: Rs 665.3 cr CMP: Rs 190.90 RoCE (FY08): 5.87% PAT Margin (FY08): 0.57% OPM (FY08): 5.39%
    STARTED in 1991, Shopper's Stop gave India its first modern departmental store. Since then, the K Raheja-promoted venture has come a long way and now has a presence across multiple specialty formats like infantwear, cosmetics, airport retailing, gaming, entertainment and catalogue retailing.
BUSINESS: Shopper's Stop has added 0.43 million square feet of space in the current year, taking its total space under operation to 1.6 million sq ft. Its store count includes 24 Shopper's Stop, 48 Crossword, three Home Stop, 18 Mother Care, five MAC & Clinique, two airport retailing, two Arcelia and 25 food & beverages (F&B) outlets. The company also has a presence in the hypermarket format through Hypercity, in which it currently owns 19%, and has the option to increase this stake to 51% by December 2008. Argos is its catalogue-retailing format.
    Shopper's Stop stocks a wide range of national and international brands. Since its inception, it has focused on the premium segment and has positioned itself as a retailer of products catering to that target audience. This strong positioning gives the company a strategic advantage in light of increasing competition. It also enables the company to boost its margins.
FINANCIALS: In FY08, Shopper's Stop's retail turnover increased by 34% to Rs 1,206.9 crore from Rs 899.6 crore in the previous year. The company earns a gross margin ranging between 40% and 45% from private labels, which boosts its revenues and acts as a margin buffer.
    The like-to-like sales growth for Shopper's Stop department stores in FY08 was 16% on an average— stores older than
five years grew 6%, while stores less than five years grew 28%. The company's net operating expenses increased to 95.3% of revenues, against 92.7% in the previous year. Rapid increase in lease rentals, electricity expenses and administrative costs led to this surge in expenses.
    In FY08, the company opened large stores, which have high rentals. Additionally, the provision for service tax on rentals has added to the lease rental expenses. Lease costs increased by 60% during FY08.
    Other administration expenses rose by 54%, while selling expenses surged by 57% during the same period. The selling expenses were higher on account of the change in the company's logo and expenses to revamp its stores.
JOINT VENTURES/TIE-UPS: In order to initiate its airport retail venture, Shopper's Stop partnered with the Switzerland headquartered Nuance Group to set up retail stores at domestic airports. The company entered into another 50:50 joint venture with Timezone Entertainment to mark its entry into the gaming and entertainment business. Its catalogue retail venture Argos is also a tie-up.
GROWTH DRIVERS/TARGETS:
Shopper's Stop recently changed its logo and brand image to give the company a new look. Apart from introducing new shopping bags, the company revamped its stores by adding in-store radio facility and trial rooms with day & night lighting
options. This revamp was aimed at luring youngsters, who are the largest spenders in the country these days.
    The company's growth is likely to be driven by its strong expansion plans. Its total number of stores is likely to nearly triple to 320 in FY11 from 118 at the end of FY08. The company's retail space during the period is likely to increase at a compound annual growth rate (CAGR) of 56% to 6.8 million sq ft from nearly 1.8 million sq ft currently.
    Additionally, expansion is expected to be across various formats like department stores and specialty stores. For instance, the company plans to double the number of department stores to 49 from 24 at present, while its specialty stores will triple to 251 from 83.
RISKS: Besides the delay in store completion, increasing operating costs have been affecting the company's margins. Moreover, volatility in the stock market has delayed the company's rights issue. This will impact funding for its future expansion plans.
OUR TAKE: Shopper's Stop's strong focus on the upper middle class urban population has helped to boost its sales. Though the company has a small presence in the value format, the 'uber chic' population's search for 'something new' stops here.
    supriya.verma@timesgroup.com