Pantaloon: Retail manna

Buoyant lifestyle demand buffs Pantaloon numbers

Pantaloon's numbers for February indicate that consumer demand remains buoyant. In a month in which there are no festivals, the company has posted a 26 per cent y-o-y same store sales growth in its value retailing business.

The lifestyle retailing segment too has seen reasonably good same store growth at 14 per cent y-o-y. If one were to consider the period between July 2005 and February 2006 too, the numbers are strong with a growth of 28.31 per cent y-o-y for same store value retailing business and 20 per cent y-o-y in same store lifestyle retailing. The stock has spurted 12 per cent since Friday's closing.

At the current price of Rs 1,950, the stock trades at 40 times FY07 and 26 times estimated FY08 earnings and appears to be expensively valued.

However, Shoppers Stop trades at 48 times FY07 and 34 times FY08, for a lower pace of growth. Trent too is not cheap at the current price of Rs 877, trading at 32 times FY07 and 24 times FY08, given that its growth too will be lower than Pantaloon's.

With organised retail in the country set to grow at a brisk pace, given the favourable demographics and growing aspirations, all players in the sector should gain.

However, Pantaloon, with 80 stores across multiple formats, catering for 60 per cent of the consumer's wallet through the range of product categories, is the best poised to capture this growth.

Competitors such as Shoppers' Stop are present mainly in lifestyle retailing, while Trent, which sells mainly private labels, has only recently entered value retailing.

Besides, Pantaloon, which is already the largest player in the segment, is expanding aggressively and plans to open 204 stores across categories and formats by FY08, adding approximately 7.1 million square feet of space.

In the process, Pantaloon will reach out to more Tier-II cities, which account for 15 per cent of its floor space.

Players such as Trent, on the other hand, despite having a strong balance sheet are understood to be opening around 20 stores in a similar time frame, while Shoppers Stop plans to add around 2 million square feet. All in all, fast movers are likely to be the major beneficiaries.

Mastek: The French connection

Mid-cap software companies have had a problem as they have grappled with growth as well as a consistent performance. To ensure growth, these companies are busy acquiring clients or companies, adding geographies and working towards stable revenue streams.

Mastek too seems to be following such a strategy. The company recently announced a partnership with Euriware, France. Under the agreement, the two companies will work exclusively with each other in France and India for three years.

Mastek's strategy is different from that of KPIT Cummins, which acquired a consulting firm Pivolis in France. While Pivolis has estimated revenues of about ¤2.5 million in CY05, Euriware is much larger, with a euro 228 million euro turnover, and is part of the Areva group.

Euriware provides consultancy, system integration and outsourcing services. Mastek will set up a development centre for Euriware in India, which will employ 450-500 people. The Mastek-Euriware combine will grow the business to ¤35 million (over Rs 185 crore) in three years.

Analysts say that for Mastek, which had consolidated revenues of Rs 567 crore in FY05, this will still be a reasonably important revenue stream three years later, even though rates may be lower.

Also, there are chances that Mastek may see more outsourcing work coming its way from other companies in France, as both companies will jointly bid for business.

Last month, Mastek signed a 10-year licence agreement with Capital Life & Pensions, UK where Capita will use Mastek's insurance solution Elixir for providing BPO services to its insurance clients.

Mastek will receive one-time revenue for the licence and also for customising the product to suit the requirements of Capita's customers.

Mastek's financial performance has been improving since March 2005, with a consistent improvement in operating profit. For the December 2005 quarter, Mastek's consolidated revenues grew 14 per cent q-o-q in the December quarter, with good growth across geographies and verticals.

Operating profit grew lower at 7.37 per cent as other expenses went up 30 per cent. Operating profit margin fell 99 basis points to 16.58 per cent in the December 2005 quarter. At its current price of Rs 715, the stock trades at around 12 times FY07 EPS.