Pantaloon Retail - Buy Stocks Of Leading & Only Growing Retailer

Pantaloon Retail (PRIL) recorded positive Same Store Sales (SSS) for the two consecutive months of January and February 2009, after having plunged and recorded negative growth in November 2008 and ruling weak in December 2008. Amidst the ongoing economic slowdown, Pantaloon’s Lifestyle Retailing Segment sprung a surprise registering higher SSS growth than Value Retailing in January 2009.

Back in Business
Same Store Sales growth positive in January and February 2009

The Lifestyle Retailing Segment reported a better performance on the back of the
month-long Great Indian Shopping Festival held by the Future Group in December 2008-
January 2009 and increased consumer confidence compared to the last quarter of CY2008.
The Segment witnessed healthy yoy SSS growth of 12% in January 2009 v/s 14% degrowth
registered in December 2008. On the other hand, the Value Retailing Segment witnessed
yoy SSS growth of 4% in January 2009 as against 3.6% degrowth in December 2008.
The positive trend continued in February 2009 with the Value and Lifestyle Retailing
Segments recording yoy SSS growth of 5.3% and 4.4%, respectively. The sustained sales
growth in February 2009 can also be attributed to aggressive pricing, continuous
promotional efforts and availability of more credit for consumers following softening of Interest rates. Pertinently, on a yoy basis, SSS growth of PRIL Standalone is nearing July 2008 levels which is an indicator of revival in consumer sentiment.

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Future Group's Home-Retailing arm, HSRIL, is still witnessing negative SSS growth since November 2008. HSRIL, on a yoy basis, SSS degrew by 36% in November 2008, a sharp decline compared to a healthy SSS growth of 23% in October 2008. The substantial SSS growth registered in October 2008 followed by the dip in November 2008 can be attributed to the festival of Diwali falling in October in 2008 as compared to November in 2007. The months of October and November 2008 combined, witnessed a 9% decline in SSS yoy and reflected low levels of consumer confidence.

Outlook and Valuation
We are bullish on the long-term growth prospects of the Retail Sector despite the ongoing slowdown in the economy. Our Top Pick PRIL is the largest player in the Indian Retail Sector.

We are positive on PRIL as it has been able to maintain its growth (YTD) at a healthy 31% on a Standalone basis and 34% on a consolidated basis despite the slowdown. We believe that PRIL Standalone would be able to meet our FY2009 and FY2010 Net Sales estimates of Rs6,894cr and Rs8,492cr, respectively. We estimate PRIL Standalone to clock Net Profit of Rs154.6cr and Rs217.8cr in FY2009 and FY2010, respectively.

On the bourses, the PRIL stock has witnessed significant correction in the past few months and is currently trading at attractive valuations and provides favourable risk-reward for the investors.

At Rs138, the stock is trading at 11.1x FY2010E Earnings and 1.6x FY2010E P/BV. We have valued PRIL Standalone at Rs173. We have valued PRIL's stake in FCH, HSRIL and Future Bazaar at Rs33, Rs13 and Rs20, respectively.

We maintain a Buy on the stock, with SOTP Target Price of Rs239, translating into an upside of 73% from current levels.

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