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| Pantaloon Retail: The cost factor |
| Akash Joshi & Priya Kansara Pandya / Mumbai Aug 31, 2010, 00:43 IST |
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The company managed to achieve momentum in revenue growth, but rising costs took a toll on profitability.
 An improving economic scenario, rising discretionary consumer spending and the management focus on rationalisation of business helped Pantaloon Retail India (PRIL) report 40.7 per cent growth in revenues at Rs 8,926 crore for FY10. The uptick in revenues was led by 14 per cent growth in same-store sales, as against six per cent in FY09.
The home retail business, which was languishing with a 11 per cent fall in revenues the previous year, saw 12 per cent growth in FY10. The value retail business maintained a steady 9.5 per cent growth. However, the revenue boom did not translate into better profits, as rising costs, especially employee costs (up around 43 per cent), strained operating profit growth at 22.4 per cent. Earnings before interest, tax, depreciation and amortisation margins fell 136 basis points to around nine per cent.
There are concerns at the net level, too. If the profit on sale of investments of Rs 75 crore was to be excluded, net profit inched up just 10 per cent to Rs 155 crore. This is despite a lower tax and interest outflow, as debt came down from Rs 3,200 crore to Rs 2,910 crore.
In an attempt to present itself as a focused retail player, PRIL merged its subsidiary, Home Solutions Retail, with itself and created a wholly-owned subsidiary, Future Value Retail, in January 2010. The results have been impressive on the retail revenue front. However, analysts reckon that management still needs to streamline costs, especially interest costs, to aid profitability. The consolidated debt levels are at 1.3 times, lower than the 1.5 times in FY09, but there is scope for improvement, reckon analysts.
Citi Investment Research and Analysis ascribe a 30 per cent premium against its regional peers, as the company has shown better ability to weather the downturn in the industry and depict revenue visibility.
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