CARE has assigned a `PR1+` rating to the proposed CP issue of Rs 2 billion of Pantaloon Retail (India) (PRIL). The proposed CP issue would have tenure up to one year. The CP would be carved out of the sanctioned working capital limits of the company. Instruments with this rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk.
The rating derives its strength from PRIL`s proven track record in the organized retail business in India, pan-India presence across multiple formats, demonstrated ability to raise capital as required and adequate retail space tied-up for stated medium term plans.
The rating is constrained by expected support that PRIL may need to provide for its subsidiaries and Joint Ventures (JVs) including towards the capital-intensive insurance business. Ability of the company to control real estate lease rentals, retain talent, maintain profitability margins in an increasingly competitive industry scenario and performance of the subsidiaries and JVs will be the key rating sensitivities.
PRIL is a professionally managed company led by Kishore Biyani, who is one of the entrepreneurs in the retail sector in the country. PRIL is one of the major organized retail players in India. It commenced operations in 1987 and has an early mover advantage over other players in the country. As at 30 June 08, PRIL operates through a variety of retailing formats in value and lifestyle segments spread over an area of 7.86 million (mn) square feet across 57 cities and about 16 states.
PRIL`s lines of business comprise food, fashion and general merchandise. Around 70% of PRIL`s sales are derived from value formats like Big Bazaar and Food Bazaar, the balance is derived from lifestyle formats like Pantaloon Megastores (PMS) and Central. Over a period of time, the company has demonstrated steady track record in establishing stores in multiple formats across India and successful operation of the same. All of PRIL`s stores are taken on lease, not owned, thus restricting its capital expenditure. However, this strategy exposes PRIL to the risk of rising lease rentals.
PRIL`s investments in subsidiaries and JVs amount to more than 20% of net worth as at end FY07. This exposes PRIL to the risk of performance of these subsidiaries and JVs. The revenue model of many of these entities is partially linked to PRIL for customer acquisition. Many of these ventures are at inception stage and are expected to require support from PRIL at regular intervals if they are unable to tap external sources.
Shares of the company declined Rs 6.75, or 2.8%, to trade at Rs 235. The total volume of shares traded was 10,808 at the BSE (3.32 p.m., Friday).