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Sluggish growth ahead for Pantaloon: Analysts

By FashionUnited

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With a slowdown in Pantaloon’s growth in the June quarter,

analysts feel that the chain is likely to face more storms in the coming days. However, Pantaloon is optimistic about the upcoming festive season. “Sales in May were particularly sluggish and this severely impacted same store sales (SSS) growth,” it said in an investor update. According to analysts from Morgan Stanley, same store volumes are likely to have fallen 8-10 per cent. Also, in the June quarter, Pantaloon’s sales growth varied from minus one per cent to five per cent.

In the same quarter, Pantaloon’s sales was four per cent in its core retail operations, profit before tax was down 92 per cent as compared to same period last year. For the 12 months ended June 2012, Pantaloon’s consolidated operations fell 79 per cent to Rs 30 crores with a significant rise in interest costs. Indeed deleveraging efforts would help save interest costs on debt that is estimated at Rs 6,000 crore as of June. As per the estimates of Centrum Broking analysts, the deleveraging moves (stake sale in PRIL to Aditya Birla Nuvo, allotment to Bennett, Coleman & Co and FCH stake sale to Warburg Pincus) will fetch the company Rs 2,360 crores. Moreover, in order to become debt-free by 2013, the company plans further stake sales in its joint ventures and divestments.

Fitch Ratings indicates that unless price inflation declines or there is a hike in consumers’ wages, private consumption is not likely to improve. The only positive sign amidst the gloomy performance is the fact that cost rationalisation measures undertaken by the company have started to kick in. Analysts expect an improvement in the inventory management in the fourth quarter of the fiscal with companies putting in requisite measure towards it. Pantaloons performed well with margins moving up 30 basis points (bps), while its smaller rival shed 330 bps on this count.

Shoppers' Stop too saw its same store sales grow just one per cent while volumes fell four per cent. Its larger format, HyperCity, fared worse with same store sales and volumes falling seven per cent apiece. Gautum Duggad of Prabhudas Lilladhar feels same store sales are likely to remain sluggish in forthcoming festive season.
Pantaloon