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Patnaloon Retail – Highest EBITDA Margin

September 22, 2008

Pantaloon Retail India Ltd reported 56%, 114%, and 107% growth in revenues, operating profit, and adjusted net profit for F2008. Even though a number of subsidiaries are in investment mode, consolidated revenues and EBITDA grew by 68% and 130%, respectively.

The company changed the inventory accounting policy to lower of cost (including cost of bringing the goods to the store) and net realizable value. A huge positive as this was one of investors’ most significant concerns.

F08 EBITDA margin improved from 6.7% to 9.1%, translating into 114% growth. Operating leverage in play as surplus organizational capacities created during the last 2 years are being utilized effectively, staff cost down 100 bps, and other operational expenses including rent down 280 bps.

It is worth noting that Promoters have already converted over 60% of the outstanding warrants at Rs500 per share.

Sum of the Parts Valuation:
DCF Value for Core Business 478
Subsidiaries Valuation
Home Solutions (73.32% stake) 60
Future capital (55% stake) 68
Future Bazaar (80% stake) 14
Future Media (85% stake) 12
Total Value 631

Morgan Stanley has set a target price of Rs 568 at a 10% discount to the sum of the parts valuation. The company has also declared a dividend of 30%.

Update:
Kotak has set a target price of Rs 400 on PRIL.

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