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PANTALOON: Price hikes to boost margins; Monetization of non retail ventures to reduce interest; Lowering est 20-22%

We attended Pantaloon Retail concall; Sales traction remains strong with sustained double digit same store sales (SSS) growth across verticals.

Management indicated that increase in input costs of apparel and general merchandise has impacted the margins.

E-zone business (electronics) impacted profitability of the quarter with EBITDA loss -6% of sales and incremental loss of Rs.130m.

PRIL has not been able to improve inventory turns which are at ~98 days (same level in FY10). Management targets to improve it to 90 days by June-11.

Area addition during 1HFY11 stood at 1.2msqft (capex of Rs.4.5b); management targets to add 1.5-1.8msqft in 2HFY11 and 2.5-3msqft in FY12.

On revised estimates, we arrive at a SOTP-based target price of Rs.378 (Rs.337 excluding financial services) from earlier level of Rs.480. The stock trades at 21x FY12E EPS of Rs.12.2 and 15.5x FY13 EPS of Rs.16.5.