Dalal Street Investments
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Pantaloon Retail a SELL – Merill Lynch

May 18, 2007

Our Research Analyst had reported this exclusive story about the SELL recommendation on India’s number one retailer – Pantaloon Retail India Ltd.

Pantaloon’s value retail same-store sales growth has been slipping for the last 3 months. April was a shocker with only 2 % growth – the lowest ever in last 3 years (ignoring the festival seasonality of Oct/Nov). Business has been dull in April but it it unclear as to which stores suffered from weak sales. Poor April has pulled down the YTD same store sales growth to 17% – significantly lower than 34% in FY05 and 23% in FY06. Summer is the time when Retail Sales pick up around the world but we are seeing a fall in Pantaloon.

Cons. sales for April grew 64% YoY, much lower than the avg 80%+ growth over the last four months. Pantaloon needs to grow at over 100% YoY over the next two months to achieve our full year sales target. This looks difficult to achieve.

Falling same-store sales growth in value retail is an additional negative. Add to it imminent inventory write off of Rs450mn as per mgmt. The outlook is deteriorating and valuations are not reflecting the likely earnings slowdown. Merill reiterates Sell on Pantaloon.

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