Pantaloon’s restructuring does not cheer investors

Investors are not showing much interest in the fashion

business de-merger of Pantaloon Retail. Since the announcement in Novembers, its stocks have declined 7 per cent while the benchmark Sensex has declined by 2 per cent. Under the realignment, Pantaloon and Future Ventures will consolidate their fashion businesses into a new firm, Future Fashion, which will be eventually listed. According to the company, this exercise is aimed at simplifying the business structure and providing growth impetus to individual businesses.

For Pantaloons, this will help reduce debt by about of Rs 1,226 crores. However, for the September quarter, Pantaloons’s core retail business interest cost was as high as two-third of operating profits. Which shows that at this point of time, investors are sceptical about how the restructuring exercise will pan out eventually. Moreover, operationally, the scenario does not seem to be improving much. It is well known that the going hasn’t been good for Indian retail companies on the operations front for the past few quarters. Consumer sentiment has been weak and that’s reflecting in the financial performance of retailers and Pantaloon is no exception.

Pantaloon has been struggling with weak same-store sales (SSS) growth for some quarters now. Same-store sales measure growth based on stores open for at least a year. Nevertheless, the September quarter did bring some cheer on the lifestyle retail front, which saw double-digit SSS growth of 10.8 per cent. That was the strongest lifestyle SSS growth for the last five quarters.