The Kishore Biyani-owned enterprise continues to struggle despite increased revenues during the third quarter. Pantaloon can neither reduce its debt to increase cash flow nor increase it fund expansions as in the past. Is it condemned to a slow death if it is not taken over?
Even though Pantaloon’s sales increased 9.6% year-on-year (y-o-y) to Rs3,170 crore for the quarter ended December 2012, interest and debt continue to remain a key concern for the retailer. The interest burden of the company is so high that as much as 95.8% of its earnings before interest and tax (EBIT) is the interest component. The company recorded Rs163.50 crore of EBIT whereas its interest component was Rs156.70 crore. This wasn’t any different from the Rs158.20 crore of interest in the same quarter last year.
The company’s consolidated debt for the quarter has reduced by little less than a percent y-o-y. Consolidated debt stood at a whopping Rs6,990 crore as on December 2012, down from the Rs7,150 crore as on June 2011. According to an Edelweiss report, “Interest burden though contained, continued to weigh heavily on profit. The sequential reduction is primarily attributable to lower cost of debt on account of renegotiation of interest rate.” Pantaloon somehow manages to survive by renegotiating its interest rates with banks.
The December quarter has been characterised by high interest rates (it was cut only in January) and a slowing economy. Consumers were reluctant to spend that much. Same store sales (SSS) weren’t all that impressive. According to Edelweiss, SSS growth, for the three months ended December 2012, was at 12.7% in lifestyle retail while value retail SSS grew at 5.1%. Weak performance continued in home retail with a decline of 3.4% y-o-y SSS growth. Furthermore, the Edelweiss report said, “Though gross retail space addition was 0.41mn sq ft, net addition was a mere 0.02mn sq ft owing to some store closures.”
Check some of our articles on how Pantaloon’s debt burden was killing it:
Pantaloons growth is expected to come under pressure due to massive debt
The company is currently undergoing a ‘restructuring’ programme to rid of its gargantuan debt. According to Edelweiss, the demerger of the Pantaloon retail format is likely to come through by March 2013. The realignment process into three separate entities is likely to be completed by September 2013. These developments will further help reduce debt by Rs2,800 crore, according to Edelweiss. Last year, to survive, it agreed to sell the Pantaloons Format Business (PFB) stores to Aditya Birla Nuvo for Rs800 crore.
All this is ironical. Kishore Biyani, the promoter and high-profile figure behind Pantaloon Retail came up with a self-promoted book called “It Happened in India” which highlighted the achievements of Pantaloons and his rise from humble beginnings. It was supposed to be an inspiration to many but readers who are well aware and well versed with the company’s numbers will think otherwise. In the book, it is mentioned that he wants to capture every Indians’ wallet share, from the ultra-rich to the lower middle-class. It is with this one-track mind that he singularly focused on borrowing massive amounts of money and piling up loans, hoping to be the next ‘Wal-Mart’. Rather than worry and create a robust business model that could be built over time, he was in a hurry and wanted to build an empire in no time. Of course, this strategy was suspect all along and has backfired. After all, retailing is a low margin business, a drawback that can only be overcome only with a strong customer pull. And Pantaloon has not created any connect with its customers.
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The across-the-board decline in sales is seen as a sign that consumers are limiting their spending
Maruti Suzuki India (MSI), India’s largest car maker today reported 7.89% decline in its total sales at 1,09,567 units in February 2013 compared to 1,18,949 units in the corresponding month last year.
In February this year, MSI had recorded domestic sales of 97,955 units compared to 1,07,653 units in the year-ago period, registering a fall of 9.01%, it added.
MSI’s exports, however, went up by 2.80% to 11,612 units last month from 11,296 units in the year-ago period, the company said.
Total passenger car sales in the domestic market dropped by 10.89% to 83,865 units from 94,118 units in the same month of 2012.
Sales of the company's mini-segment cars, including M800, A-Star, Alto and WagonR, fell by 15.87% to 41,311 units during the reporting period from 49,104 units in February 2012.
In the compact segment (comprising Estilo, Swift and Ritz models), MSI witnessed a dip of 13.90% in sales to 24,021 units from 27,899 units in the same month a year ago.
Sales of MSI's DZiRE model jumped by 21.56% to 18,316 units in February from 15,068 units in the same month last year, it added.
MSI's mid-sized sedan SX4 sales tumbled by 89.42% to 215 units last month from 2,033 units in February 2012, the company said.
Luxury sedan Kizashi witnessed a mere two buyers during the month as against sale of 14 units in the year-ago period, down 85.71%.
MSI also sold 5,957 units of utility vehicles, comprising Gypsy, Ertiga and Grand Vitara, compared to 230 units in the year-ago period, registering a nearly 26-fold rise.
Sales of Omni and Eeco, however, dipped by 38.87% to 8,133 units from 13,305 units in February 2012.