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Re-stitching Pantaloon

The promoters are looking to rationalize various group companies working and present a better financial face to the investors

The article takes a look at  how the Future Group is trying to take advantage of a new era, characterized by economic revival after having suffered a global financial crisis blow. The article first appeared in the December issue of Wealth Insight magazine.

The downturn and the subsequent recovery has forced many corporates to look towards ushering in a rationalising exercise to separate, and underline the importance of their frontline businesses. The need of the hour is to be able to show profitable ventures on the basis  of which they could secure loans, or lure others into buying a stakehold, or even convince stock market investors about their great growth potential. 

The talk on restructuring Pantaloon Retail (PR) has been going on since early first quarter of fiscal 2009, when it was announced that the company was mulling a new name for itself: Future Market & Consumer Group Ltd, but the action has turned serious now as a reviving economy has raised demand leaving the company in a much better position. 

PR, India’s largest shopping chain by market value, is finding this to be the best option available to it, in the current economic situation. The company, with wide-ranging subsidiaries, has announced it will restructure its businesses to unlock value. At the moment, all the business segments in the group are part of Pantaloon’s balance sheet. It may also exit some non-core businesses.

Among the most noteworthy aspects of the exercise would be to hive-off Big Bazaar (BB) and thereby transform PR into a pure retail player. BB accounts for as much as 65 per cent of PR’s revenues of Rs 6,347 crore as per its fiscal ending June, 2009 report. Both BB and Food Bazaar will become wholly-owned subsidiaries of PR — a stake sale is eyed. Of the remaining businesses, Future Knowledge Services, Future Brands and Future Learning will be transferred into a separate company. The financial services businesses will be separated too. At the moment it consists of Future Capital Holdings, Future Generali India Life Insurance and Future Generali India Insurance. They have been leaking money.

PR is making a play for greater control of the organised retail market which is currently 4.5 per cent of the total retail market in India, but this is expected to rise to 25 per cent in 10 years’ time.

The retailer is also looking at merging a Rs 700 crore subsidiary, Home Solutions Retail, into itself in which ICICI Venture and Kotak have a stakehold. Another point of the restructuring exercise is to generate cash, which will be used to fund the core retail business as well as cut down debt. It has already held a qualified institutional placement (QIP) that threw up Rs 500 crore, which will reduce the debt:equity ratio to 1.3:1 from 1.5:1 - current debt is Rs 3,858 crore. The servicing of the interest rates is taking a major chunk of the company’s income, reportedly over 4 per cent.

Also, the group is quite aggressive on expansion and needs cash to fund it. Since March, 2009, the company has expanded its retail area by over 21 per cent to 11 million square feet and is eyeing a similar growth trend for the next fiscal too.

Restructuring will create a clarity for investors. It will give them a clear idea of what part of the business they are investing in. The effect on the bourses is positive too, with the stock price having gained since the announcement was made. 

The global financial crisis has left the retailer’s health in a better condition than that of its competitors, some of whom had to shut down. Now, after positioning itself better in the market, it hopes to convert their head start into an unbeatable position.

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