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Friday, 04 November 2011 |
Debt ridden, Pantaloon Retail recently announced that it plans
to raise upto Rs 1,500 crores through a convertible issue or debt instruments with warrants. It is also planning to shut non-core (non-retail) businesses, including Future Capital Holdings, within a year, which could fetch the company around Rs 3,500 crores. Both the moves are highly important for the company since it is already experiencing high inventory (110 days) leading to higher working capital and increased debt-equity ratio that increased 2.5 times. As a result, its interest costs have substantially risen to 5 per cent of sales or, 59 per cent of operating profit, in the year ended June 2011, impacting profitability.
According to analysts, both the decisions at the current market rate may not work in favour of the company, since the company doesn’t plan to dilute more than 15 per cent of its equity to raise funds. At the same time it doesn’t want the debt-equity ratio to go higher than 1.33, plus closing a business arm in a hurry may force them to compromise for lower valuation, given the low sentiment in capital markets.
The only option left is waiting for the approval on FDI in multi-brand retail. But on the other hand, the government is in no hurry to change the policy yet. With its stocks trading at the lower end, the uncertainty about company’s future continues. Meanwhile, adding to its woes, Sebi has imposed a penalty of Rs 5 lakh on Pantaloon Retail for failing to address investor grievances within the stipulated timeframe. Sebi had earlier identified the firm as one of the companies against whom a large number of investor grievances were pending for more than six months as on June 30 last year. In July 2010, Sebi had asked the company to redress the complaints and submit an action taken report within 30 days. However, Pantaloon Retail failed to do so.
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