Fundamental Analysis Of Pantaloon,mba,nit Durgapur

ASSIGNMENT ON

FUNDAMENTAL ANALYSIS OF RETAIL

AND TECHNICAL PANTALOON

SUBMITTED

TO: Prof A. DUTTA

BY NAME ROLL NO

INSTITUTION TECHNOLOGY

: SARANGDHAR : 07/MBA/56

: NATIONAL INSTITUTE OF DEPATMENT OF MANAGEMENT

STUDIES (DURGAPUR)

Pantaloon Retail (India) Limited

Pantaloon Retail (India) Limited, is India’s leading retailer that operates multiple retail formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in Mumbai (Bombay), the company operates over 10 million square feet of retail space, has over 1000 stores across 61 cities in India and employs over 30,000 people. The company’s leading formats include Pantaloons, a chain of fashion outlets, Big Bazaar, a uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends the look, touch and feel of Indian bazaars with aspects of modern retail like choice, convenience and quality and Central, a chain of seamless destination malls. Some of its other formats include, Depot, Shoe Factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Star and Sitara. The company also operates an online portal, futurebazaar.com. A subsidiary company, Home Solutions Retail (India) Limited, operates Home Town, a large-format home solutions store, Collection i, selling home furniture products and E-Zone focussed on caterng to the consumer electronics segment. Pantaloon Retail was recently awarded the International Retailer of the Year 2007 by the US-based National Retail Federation (NRF) and the Emerging Market Retailer of the Year 2007 at the World Retail Congress held in Barcelona. Pantaloon Retail is the flagship company of Future Group, a business group catering to the entire Indian consumption space. Future Group

Future Group is one of the country’s leading business groups present in retail, asset management, consumer finance, insurance, retail media, retail spaces and logistics. The group’s flagship company, Pantaloon Retail (India) Limited operates over 10 million square feet of retail space, has over 1,000 stores and employs over 30,000 people.

Future Group is present in 61 cities and 65 rural locations in India. Some of its leading retail formats include, Pantaloons, Big Bazaar, Central, Food Bazaar, Home Town, eZone, Depot, Future Money and online retail format, futurebazaar.com. Future Group companies includes, Future Capital Holdings, Future Generali India Indus League Clothing and Galaxy Entertainment that manages Sports Bar, Brew Bar and Bowling Co. Future Capital Holdings, the group’s financial arm, focuses on asset management and consumer credit. It manages assets worth over $1 billion that are being invested in developing retail real estate and consumer-related brands and hotels. The group’s joint venture partners include Italian insurance major, Generali, French retailer ETAM group, US-based stationary products retailer, Staples Inc and UK-based Lee Cooper and India-based Talwalkar’s, Blue Foods and Liberty Shoes. •

Company profile:

Registered Office Knowledge House, Shyam Nagar Off Jogeshwari-Vikhroli Link Road Jogeshwari (E), Mumbai 400 060. India P +91 22 6644 2200 F +91 22 6644 2201 www.pantaloon.com Board of Directors Mr. Kishore Biyani Managing Director Mr. Gopikishan Biyani Wholetime Director Mr. Rakesh Biyani Wholetime Director Mr. Shailesh Haribhakti Director

Mr. S. Doreswamy Director Dr. Darlie Koshy

INDUSTRY OUT LOOK Industry Evolution •

Traditionally retailing in India can be traced to

•

The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the consumers

•

Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission

•

1980s experienced slow change as India began to open up economy.

•

Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains

•

Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches

•

The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers.

•

For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books.

•

Post 1995 onwards saw an emergence of shopping centers,

•

mainly in urban areas, with facilities like car parking

•

targeted to provide a complete destination experience for all segments of society

•

Emergence of hyper and super markets trying to provide customer with 3 V’s - Value, Variety and Volume

•

Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid.

•

At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000 crore

Retailing formats in India o

Malls: 

o

The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7, 00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment; all under a common roof. Examples include Shoppers Stop, Pyramid, Pantaloon.

Specialty Stores: Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors.

o

Discount Stores: 

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies z

Recent Trends

•

Retailing in India is witnessing a huge revamping exercise as can be seen in the graph

•

India is rated the fifth most attractive emerging retail market: a potential goldmine.

•

Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion

•

As per a report by KPMG the annual growth of department stores is estimated at 24%

•

Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney.

Major Retailers

•

India’s top retailers are largely lifestyle, clothing and apparel stores

•

This is followed by grocery stores

•

Following the past trends and business models in the west retail giants such as Pantaloon, Shoppers’ Stop and Lifestyle are likely to target metros and small cities almost doubling their current number of stores

•

These Walmart wannabes have the economy of scale to be low – medium cost retailers pocketing narrow margin

India vs. World

•

Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India

•

India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person)

•

Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than the turnover of HLL (India's largest FMCG company).

•

Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare.

•

The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people.

•

One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of HLL's annual turnover.

•

Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India today).

•

60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastest-growing 50 retailers have just one format

•

Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10.

•

Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

Future direction: Positives

•

AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years.

•

With the organised retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.

•

The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade

•

Over next two years India will see several Indian retail businesses attaining a critical mass as growth in the industry picks up momentum driven by two key factors:

•

Availability of quality real estate and mall management practices

•

Consumer preference for shopping in new environments

•

Wal-Mart : huge plans for India. Moving a senior official from its headquarters in Bentonville, Arkansas, to head its market research and business development functions pertaining to its retail plans in India.

•

New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF Properties to set up shop in a mall in New Delhi.

•

Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmadabad, Lucknow and Bangalore in the next four months.

Future direction: Concerns •

68 million square feet of mall space is expected to be available by end of 2007, which might lead to over-capacity of malls

•

Lack of differentiation among the malls that are coming up. One option may be to look at specialization.

•

Poor inventory turns and stock availability measures - retailers clearly need to augment their operations.

•

Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in the Indian auto and auto-

component industry can be leveraged to implement efficient supply chain management techniques. •

Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an issue

•

Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers having higher inventories. VAT has helped alleviate this a bit.

•

Increased adoption of IT and shrinkage management will be a critical area.

•

Supply chain and customer relations followed by merchandising, facilities management and vendor development are areas which have significant gaps and proactive training is a key imperative for overcoming these.

Indian Retail: Past Vs Present It is widely accepted that the retail industry has undergone a drastic change in last five years and there is yet more to come. Comparing the image of Indian retailing in 2004-05 to that of its status in 2007-08 in the following table: Magnification of the Indian Retail Industry

Yardstick

Situation in 04-05

Situation in 0708

Value of retail sales

Rs. 10,20,000 crore

Rs 12,00,000 crore

Annual growth rate

5%

5.7%

Value of organized market

Rs 35,000 crore

Rs 55,000 crore

Share of organized market in the sector

3.4%

4.6%

Forecasts (after 5 Over Rs. 1,00,000 crore years) about size of organized retail market

Rs. 2,00,000 crore

Forecasts about growth Around 30% rate of organized retail market

Around 40%

The above table clearly shows that the retail market as well as the mindset required for it has experienced a thorough revisal in the last three years. This is just the beginning and Indians are sanguine that the sector will see rosy days in the future. This confidence has helped India acquire the No.1 position among 30 most attractive retailing destinations in the world according to the Global Retail Development Index of 2005 (by AT Kearney, India). Among emerging markets, India holds the second position after China in the list of most favored retail destinations.

COMPANY OUT LOOK

ENVIRMENTAL Foreign entrants Infrastructure etc.

POLITICAL

SOCIAL

Opposition from political parties ,for unorganised

Change in the buying pattern ,disposable

PANTALOON RETAIL

LEGAL Acquisition of land etc.

TECHNOLO – GICAL SAP has been implimented

PESTLE ANALYSIS OF PANTALOON RETAIL

Pantaloon was mentioned in SAP’s annual report as one of its most important implementations in 2006, worldwide. The economy is slow down after the bankruptcy Lehman brother’s and instability of Merill lynch ,now all the companies is facing decrease in its growth in every sector ,not in India but all over the world is facing the heat. This time it is not possible for any one to predict any thing in near future, but we assume that in about 2 years market will recover and condition will be

almost same as it was before slow down of economy. World is facing systematic risk which is not in the control of any one. And when we take Pantaloon retail it is depended on FMCG to consumer durables product so it does not effect drastically but, we still assume that in 2 years it will have the same condition as it was before slowdown of economy.

Company strength The Company looking at capturing a significant portion of the entire Opportunity that the Indian economy provides. These are being done through multiple initiatives in existing businesses and also by building new businesses on the peripheries of the retail business. The Company has significantly strengthened its existing mature businesses and is expanding established retail formats into new geographies and cities. At the same time, to capture new consumption trends, the Company has rolled out a large number of new initiatives and retail formats in segments like home improvement, consumer durables, communication products, books, music and entertainment, health, beauty and wellness among others. These specialty retail formats are in many cases the first in India and are expected to garner a significant portion of consumption expenditure goin into new categories. During the period under review, the Company opened 11 Pantaloons, 27 Big Bazaar, 13 stand-alone Food Bazaar, 1 Central and 5 Brand Factory. Subsidiary Company, Home Solutions Retail India Limited rolled out 2 Home Town, very-large format stores along with other retail formats. New stores covering around 2 million square feet of retail space were rolled out taking the total retail space under operation to around 5.2 million square feet as on June 2007. The Company plans to increase its retail space by nearly 4.5 million to 5.5 million square feet in the coming year. In order to further leverage its reach and ability to attract increasing number of customers within its stores, the Company has rolled out new businesses and subsidiaries in the areas of consumer finance,capital, insurance, real estate funds, retail media, brand development and logistics. Each of these new initiatives is a step towards driving more value from its existing retail businesses and at the same time.

Ratios Profitability 07

Jun-05

Jun-06

Jun-

Jun-08

PBDIT/Total Income 9.24%

8.89%

7.99%

9.19%

PBDT/Total Income

6.29%

100

6.02%

6.54%

80 60

East

5.52%

West

40

North

100

20

80

0

Net Profit/Total 1st Qtr Income 2ndQtr 3rdQtr 4thQtr 3.60%

3.65%

3.43%

60

2.49%

East West

40

RONW (Average Networth) 14.82%

24.42%

20

8.57%

ROCE (Average Capital employed) 17.48%

22.41%

0

18.30% 1st Qtr 2ndQtr 3rdQtr 4thQtr

14.44%

Financial Performance 07

Jun-05

Jun-06

Jun-

Jun-08

Cost of goods sold / Net Sales 68.26%

66.52%

66.53%

69.56%

Manpower costs / Total Income 6.19%

4.80%

5.99%

5.42%

Advertising and selling cost /

2.34%

Total Income

3.08%

2.72%

2.80% Interest/Total Income 2.70%

2.60%

3.43

3.42

Jun-07

Jun-05

Jun-06

Jun-08

Debt-equity ratio 0.79

0.89

0.50

1.19

Debtors turnover(days) 100

4

3

8

80 turnover(days) Inventory

94

98

102 East

60

40 Ratio Current

2.19 20

West

1.73 1.71

Quick Ratio 0 1.08

4.05

3.19

Balance Sheet

99

1.97%

3.67%

PBDIT/Interest (Debt-Service Ratio)

7

North

17.15%

1st Qtr 2ndQtr 3rdQtr 4thQtr

0.55 0.78

North

1.44

0.58

FINANCIAL RATO OF PANTALOON RETAIL

KEY CONCERNS •

PAT is continuosly increasing year by year it was 38.55 in 2005,64.16 in 06,119.99 in 07 and 125.97 in 2008. It is therefore has profit % of 66% in 2006, 87% in 2007 ,but it decreases drastically to just 4.5% in 2008, it is due to slow down of economy.

•

cash profit is increasing by good % this shows it has sufficient money to run it business and expand .it was 85 % in year 2007 and it become 33.47 % in 2008 .

•

It income from sales and other was1868.97 9n year 2006, 3236.74 in yr 07 and 5048.91 in yr 08 .so it has growth of 73 % in 207 but it decreased to 55.98%.

•

It can be observed in the table company’ s performance year by year was increasing at almost const rate , but in this recession time when whole economy is slow it is also feeling the heat as the other

companies have same effect.it is assumed that 2 years will be needed to recover the market. •

Disposable income of Indian is increasing ,which may be effected few year ,but huge population ,and strong base of Indian companies gives hope it recover in 2 yrs.

•

Government sectors pay revision , PSUs still in the process will have ,little but some effect on increase in disposable income of people.

VALUATION OF SHARE. Share price of pantaloon on 31 st Oct 2008 was Rs 203 52 week high price 31 st Oct 2008 was 52 week low price 31 st oct 2008 was

SENSEX return

Rs 177

and pantaloon return

Year

% growth in share price

% growth in sensex

2003

1.827000964

0.130798978

2004

1.314162914

0.423348665

2005

-0.76336192 9

0.467015609

2006

1.076865579

0.471467501

2007

-0.58514786 2

-0.58342711 3

2008 average without recession( excluding year 2008)

Rs 795

0.863666882 0.373157688

SLOPE =

0.9437

INTERCEPT = 0.402

PANTALOON RETAIL RETURN = 0.9437 + 0.402 X MARKET RETURN

Market return will depends on different conditions of economy. Here we assume the systematic risk arisen in the market will have it effect on the Indian economy due to bankruptcy of Lehman bro. ,unstability of Merill Lynch .whole world is feeling the heat and for 2 years market will more or less will be of same condition after that it will have almost same conditions as it was before slow down of economy. So market return will be approx. little more than risk free rate i.e 10%. Then after it will have return of 37% Year

Target price of share

200809

223

200910

245

201011

365

TECHNICAL ANALYSIS OF PANTALOON RETAIL Overview Technical Analysis (Versus Fundamental Analysis) Technical analysis is a method of forecasting price movements by looking at purely market-generated data. A trader who uses technical analysis (sometimes called a technician or chartist) is essentially concerned with two things; 1) what is the current price? 2) What is the history of price movement? Most will also keep a close watch on technical indicators, which provide feedback on both the price and market (e.g. moving average, volume, momentum, volatility, open interest, etc). Ultimately, technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future. Almost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts

before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They also provide a visual representation of the historical price action of whatever is being studied. As such, traders can look at a chart and know if they are buying at a fair price (based on the price history of a particular market), selling at a cyclical top, or perhaps throwing their capital into a choppy, sideways market. These are just a few market conditions that charts identify for a trader. Depending on their level of sophistication, charts can also help much more advanced interpretation of the markets. On the surface, it might appear that technicians ignore the fundamentals of the market while focusing only on charts. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices. The “WHAT” Is More Important Than the “WHY” Ultimately, price is the end result of the battle between the forces of supply and demand. The objective of analysis is to forecast the direction of the future price. By focusing on price and only price, technical analysis represents a direct approach. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. Technicians believe it is best to concentrate on what and never mind why. Why did the price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why? Technical Analysis Is Based On Three Major Conclusions About The Market: 1. Price Discounts Everything: The price is a sum reflection of all the market forces and participants (“The market knows everything”), including commercial banks, investment banks, central banks, portfolio managers, buy-side analysts, sell-side analysts, market strategist, traders, investors, technical analysts, fundamental analysts and many others. Since all market fundamentals are depicted in the actual market data, the actual market fundamentals and various factors, such as the differing opinions, hopes, fears, and moods of market participants, need not be studied. 2. Price Moves In Trends.

Technicians typically do not believe that price fluctuations are random and unpredictable. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis. A technician believes that it is possible to identify a trend, invest or trade based on the trend and make money as the trend unfolds. Because technical analysis can be applied to many different timeframes, it is possible to spot both short-term and longterm trends. 3. Price Movements Are Historically Repetitive. This result’s in periodical emerging of the similar price patterns and technical indicators (based on price patterns). These patterns, generated by price movement, often signify what type of movement is to come in the near future. The goal in technical analysis is to identify and use these price patterns in the current market to predict what will happen in the future by examining and quantifying their regular effects in the past.

DOWN WARD TREND ,SUPPORT LINE

Share price from Jan –oct 2008

SIDEWAYS CHANNEL

LONG UP TREND LONG DOWN TREND

Months closing price from 2003-2008

stick chart of share price july-oct 2008

SIDEWAYS CHANNEL

UP TREND CHANNEL

SELL

BUY

DOWN TREND CHANNELCHANNEL

SELL

BUY

share price with 3 day moving average from July –oct 2008 pantaloon close price

series 1 –

SELL

SELL

Share price with 3 day moving average for sept –oct 2008

SELL BUY

Share price with 5 days moving average for sept –oct 2008 series 1- pantaloon price

SELL

BUY

pantaloon price with sensex price form sept –oct 2008 series 1- sensex price growth Seri es 2- pantaloon price growth

the period of mar 2003- oct 2008

SELL

BUY

For the period sept –oct 2008 (stochagtic chart)

% K line = % D line

(today’ s close – lowest low)/(highest high -lowest low) x 100 = average of K line (say 3 days)

CONCLUSION: As we study the whole trends of graph we find little variation with economic condition or market conditions and before economy slow down it was giving a steady growth over the years. This sector has tremendous scope to expand due to changing Indian economic condition, changing culture trends and habits’ .pantaloon retail under the umbrella of Future groups have strong base to utilise this economic conditions. Though we find that for short term it is giving average return, but for long term investment it is really a good option available in market, it is new booming sector after IT.