Pantaloon Retail

JP Morgan reiterates `Overweight’ rating on Pantaloon Retail (PRIL). Pantaloon reported net sales of Rs 1,660 crore (+20% y-o-y), EBITDA of Rs 180 crore (+30% y-o-y) and PAT of Rs 36.5 crore (+12% y-o-y) for Q4FY09 on a standalone basis. PRIL reported FY09 consolidated sales of Rs 7,670 crore (+31% y-o-y), EBITDA of Rs 500 crore (+71% y-o-y) and PAT of Rs 11.7 crore. Earnings were depressed primarily due to insurance and telecom business related losses. Most of the subsidiaries have achieved significant scale and are expected to break even next year. Incremental funding requirements for subsidiaries will be largely met by an equity stake sale with reduced investments by the parent company. Catalysts that could affect stock performance in the near term are:

1) Operating performance of subsidiaries and extent of investments being made by parent company in them,

2) Extent of equity dilution and de-leveraging, and

3) Any strategic alliances/partnerships.

JP Morgan believes PRIL, with its multi-format and multi-category strategy, reliable supply chain infrastructure and significant location advantage is a key beneficiary of the improving economic climate. They anticipate standalone earnings growth for Pantaloon to accelerate driven by improving sales growth trends, cost containment focus and benign competitive environment.