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In the Midst of a Hullaboo

Pantaloon Retail has become India’s largest retail player, but it has also added mountains of debt…

The recent FDI in retail announcement saw Pantaloon (PRIL) turn into a star performer with the biggest intra-day gain the stock has seen in some time – 33 per cent. Before the end of the session on Septmber 17, however, the stock had cooled its heels.

India’s most celebrated retailer has been grappling between growth and financing for many quarters now. While Pantaloon managed to add millions of square feet of retail space, making it the country’s largest player, it came at a steep price – a mountain of debt of Rs 7,800 crore.

Kishor Biyani, the founder-promoter of the Future Group, has now offloaded 50.1 per cent stake to Kumar Mangalam Birla’s Aditya Birla Nuvo. PRIL will be demerged with Peter England Fashions & Retail and shareholders of Pantaloon Retail (India) will receive one equity share of Peter England Fashions & Retail for every five shares held by them. In what seems a bid to sweeten the deal for Birla, PRIL recently announced that its Future Value Retail which operates 148 Big Bazaar and 169 Food Bazaar stores will be merged with itself (this was earlier kept out of the deal).

The opening of FDI may throw up some opportunities but with only nine states currently okaying it, the potential impact may be muted till more states join in. There is also the issue of restructuring. Any new partner may want the incumbents to restructure before they get into any partnership and Pantaloon has a lot of restructuring left to do. In the meantime, the economic environment is still playing spoilsport – same store sales continue to lag behind. Some sort of an open offer could be expected from the Birla stable in the near future. Long-term investors should wait out for any FDI partnership that could push up the stock.