Pantaloon reels under debt pressure

Wednesday, 12 October 2011

Unlike its competitors, increasing inventories and debt pressure has left Future Group company, Pantaloon Retail with no choice but to find a way out. Despite the festive season kicking off, the leading retailer has not been able to find favour with investors. The company’s stock has consistently underperformed at the BSE Sensex in the past one year. Though the company’s sales and profits increased 25 per cent and 110 per cent, respectively, its consolidated debt has shot up by nearly 75 per cent in the past one year to Rs 6,410 crores, raising the debt-to-equity ratio to 2.44. These numbers have been are arrived at after excluding the impact of Pantaloon’s financial subsidiaries Future Capital Holdings and Future Ventures. Its peers fare much better in this regard with both Shoppers Stop and Trent having a debt-to-equity ratio below 0.5.

By FY-11, interest costs have eaten up a major chunk of Rs 614 crores from its profits. This was almost 70 per cent of its earnings before interest and tax (EBIT). A jump in its working capital has been one key reason behind the spurt in debt. Pantaloon’s inventory increased to 52 per cent in the past one year. Part of these problems is due to the company’s aggressive growth strategy to add 168 outlets or 15 per cent retail space in the last one year.

Pantaloon Retail has many other subsidiaries across sectors – retail, logistics, media and ecommerce. This high interest outgo and working capital cycle is putting pressure on the company’s cash flows and could impact future growth plans. The company is now looking at restructuring plans like raising funds, selling stakes in some of its non-core-subsidiaries to unlock some capital and shutting down loss-making ventures such as E-zone stores. Whether the process would help Pantaloon recover, only time will tell.

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