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Time to Pull Up its Socks

India’s biggest retail chain, Pantaloon Retail’s debt is expected to go. Its stock’s prospects look bleak…

From Rs 50 levels in early 2004 to over Rs 800 by late Dec 2007, Pantaloon was one stock everyone wanted to own. Kishore Biyani, the poster boy of Indian retail's success story became a money-magnet. Any venture he would promote, people wanted in, hoping to taste the same success as he had with Pantaloon. Future Capital Holdings was one such issue sold to investors (who would later lose much of their investment in it).

Why does Pantaloon feature here? Much of Pantaloon's expansion took place before the global collapse when every bit of attractive land saw maddening bidding and outbidding by India Inc. Corporates - big and small were all falling over each other to enter the retail space. Inspite of the mad rush, the fabled Indian middle class did not bail out the likes of Pantaloon. The industry failed to develop the depth and scale all had been pinning their hopes (and fortunes) on. Where does it go from here? Pantaloon's debt stands at Rs 5,800 crore and expected to go up. Same store sales growth has been on a downward spiral over the last two years. This last December's sales were the lowest in 15 years. Capex is still high. New store sales are still weak. The company plans to divest non-core businesses, has laid off 3,000 employees and rationalised its e-zone plans to streamline operations and bring down debt.

What should you do? With retail FDI out for good, Pantaloon's leverage will impact performance and expansion. Sale of non-core assets will depend on the buoyancy of the economy. Till such time, Pantaloons will remain a sweet memory for those who held on to it on its way up (and sold it then). Sell.