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- 1. Study of Business Performance Pantaloon Retail Industries Ltd
- 3. Marketing Management Everything , Everywhere for Everyone
- 4. Marketing performance metrics Product Types Marketing Tactics Adopted Ansoff’s Product/Market growth matrix Product Differentiation Pricing Strategy Change in Sales due to Change in Expenses Competitive Strengths & Performance with respect to Competitors Marketing Awards, Recognition and Excellence
- 5. Shifts in Marketing Strategy
- 7. Ansoff’s Product – Market Expansion Grid Current Products MARKET PENETRATION Current Markets New Markets New Products PRODUCT DEVELOPMENT Food Bazaar Number Big Bazaar stores 2002: 4 Fresh fruits, vegetables, 2007: 56 ready to cook and FMCG products MARKET DEVELOPMENT aLL DIVERSIFICATION Value Retailing (Big Bazaar) a fashionable ready-made Value through volumes and garment store for plus discounting sized people.
- 8. Marketing Expenditure impact on Sales 3.5 3 2.5 2 1.5 1 0.5 0 AE/Sales (%) ME/Sales (%) DE/Sales (%) Competitor Comparison 2005 2006 2007 Year Selling Expenditure/Sales Ratio Change in Sales With Change in Expenditure Source : Prowess 10 8 6 4 2 0 Shoppers Stop PRIL Mar ' 07 Mar ' 06 Mar ' 05 Year
- 9. Human Resource Management Proud to be Pantaloonians Organization structure: Inverse pyramid structure Functional Structure Income per employee and PAT per Employee: Year 2004 2005 2006 2007 PAT Per employee (In lakhs) 0.56 0.55 0.49 0.70 Income per employee (In lakhs) 18.81 15.50 15.09 19.96
- 10. Recruitment policies & measures Tie Up with institutes Women recruitment and Diversity Recruitment Attracting Industry talent and consultants Increasing Manpower in line with business growth 2003-04 2004-05 2005-06 2006-07 3500 7000 13000 17000
- 11. Retention policies and measures Seekho: Tie up with Institutes Golden Handcuff Scheme – Insurance Schemes Employee stock options plans Employee Growth Trust Fund Recognition for work - “Pantaloon Day” , Prema Increasing manpower costs as a percentage of total income and expenditure Result: Low attrition Rate 2005-06 : 8.36% (Sectoral Average - 25%) 2006-07 : 8.12% (Sectoral Average – 20%) Front-line staff: 8 per cent, down from 12 per cent in 04-05
- 12. Training and development programs: All figures in % 2004 2005 2006 2007 Training and staff welfare/sales 0.17 0.19 0.27 0.19 Training and staff welfare/compensation 4.32 4.70 5.40 3.56 Orientation Programmes - Prarambh and Parikrama GuruKool – Outbound Program Learning and Development team Smile – For New store Managers CheckB Tie Ups with Management Institutes ox1 Encouragement for Creativity and innovation : “Future Ideas”
- 13. Performance Management , Rewards and appraisals Balanced scorecard - easier because of SAP Employee connect Recognition for work – “Pantaloon Day” and “Prema” Perks and Perquisites Average compensation per employee Year 2004 2005 2006 2007 Average compensation per employee (In lakhs) 0.78685 0.725 0.867076 1.222
- 15. Operations Management Control Costs and Improve Revenue Source : http://voicendata.ciol.com/content/goldbook/goldbook07/107031205.asp
- 16. Measures to achieve operational excellence Effective inventory replenishment Out of stock reduction through effective backroom management Store operations optimization Linking marketing & operations Interaction between Inventory, dispatching policies & routing decisions Mobile queue busting system
- 17. Key Initiative : To gain Competitive edge Business Solution Processes Implementation of SAP Connecting nation wide locations RFID for Inventory tracking Auto replenishment of stocks Merchandise Assortment Planning (MAP) Robust transaction management system Enterprise wide platform
- 18. Measure of: Implementation of Technology Amount Rs Crore in improving Operations Efficiency Investment on IT Systems/Computer 150 100 50 0 2003 2004 2005 2006 2007 % of Current Assets Ye ar Inventories as percent of current assets 80 60 40 20 0 2003 2004 2005 Year 2006 2007
- 19. Supply Chain Management Initiative Balance between back end & front end operations Working on a vendor network & logistics network Future Logistics Economies of scale Reducing warehouse costs ‘Weekly discount sale’
- 20. Key Performance Indicators(1/3) Value( in Rs.) Retail Sales per Sq.Ft 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 8575 8306 8294 7066 Retail Sales per Sq.Ft 2003-04 2004-05 2005-06 Period Source : Prowess 2006-07
- 21. Performance Indicators(2/3) Customer conversion Ratio Customer Conversion Ratio 60.00 57.11 45.83 50.00 43.75 46.11 40.00 Customer Conversion Ratio 30.00 20.00 10.00 0.00 2003-04 2004-05 2005-06 Period Source : Prowess 2006-07
- 22. Performance Indicators(3/3) Labour Productivity 8.00 6.76 7.00 Percentage 6.00 6.07 6.50 5.24 5.00 Total Labour cost/Net sales 4.00 3.00 2.00 1.00 0.00 2003-04 2004-05 2005-06 Period Source : Prowess 2006-07
- 23. Financial Management Source : Rediff Stocks
- 24. Evaluation Metrics 1. 2. 3. Profit and loss (5 years consolidated) Balance Sheet (5 years consolidated) Cash flow analysis i. Common size statement ii. Trend Analysis iii. Competitor Comparison 4. Ratio Analysis i. Year wise comparison ii. Competitor comparison 5. Altman Z test for Fiscal Fitness of the company
- 25. Economic Growth Sales Growth 3500 •CAGR of 70% since ’04 90 80 3000 70 60 2000 50 40 1500 30 Growth % Rs (Crores) 2500 1000 20 500 •Area of operations increased to 45 lakh sq ft •About 200 more stores coming up by end ‘08 10 0 0 FY-03 FY-04 FY-05 Years •Largest revenue generator •Highest CAGR only next to vishal FY-06 FY-07 Sales Growth % Company Sales (Rs. mn) Sales CAGR FY07 FY04-07 32,367.40 70% Vishal Retail Limited 6,026.53 89.83% Trent 4,557.82 43.25% Shopper’s Stop 7,995.98 34.05% Pantaloon Retail India Limited
- 26. Margins Margins 9 Percentage of sales 8 7 6 PAT % 5 EBIT % 4 Rent 3 Personnel cost 2 1 0 FY-03 FY-04 FY-05 FY-06 FY-07 Years Drop in Operating Margins Net Income is quite stable Rent & Employee costs are increasing due to expansion
- 27. Comparative Analysis Particulars Vishal Retail Pantaloon Retail Shoppers’ Stop Trent Raw-material cost (% of Sales) 57.46 68.26 63.48 56.37 Cost of goods sold (% of Sales) 62.07 69.01 65.02 58.81 Employee Cost (% of Sales) 4.81 6.37 7.32 6.24 Rental Cost (% of Sales) 5.44 6.4 7.96 2.21 Power Cost (% of Sales) 2.87 1.9 2.29 2.81 Other Expenditure (% of Sales) 13.69 9.66 8.98 22.54 OPM (% of Sales) 11.12 6.66 8.43 7.39 Interest Cost (% of Sales) 2.45 2.77 0.55 0.31 Depreciation Cost (% of Sales) 2.52 1.14 3.2 1.74 PAT (% of Sales) 4.16 3.71 3.28 7.11
- 28. Trend Analysis Huge increase in Unsecured loans Trend( balance sheet) Liabilities 9000.00 8000.00 7000.00 6000.00 5000.00 4000.00 3000.00 2000.00 1000.00 0.00 Additions in investments and Capital WIP Assets Trend Shareholder's Fund 6000.00 Unsecured loans 5000.00 Total long term liabilities Capital WIP 4000.00 Investment Fixed Assets 3000.00 2000.00 1000.00 0.00 2003 2004 2005 Years 2006 2003 2007 2004 2005 2006 Years Cash Flow Analysis 1200 Operating Activities Investing Activities Financial Activities 1000 Similar Complementary Effects on the cash In flows/outflows 800 Rs (Crore) 600 400 200 0 Jun 2002 -200 -400 -600 -800 Jun 2003 Jun 2004 Jun 2005 Jun 2006 Jun 2007 2007
- 29. Ratio Analysis Profitability Ratios Operating Profit Margin (%) EBIDT Margin (%) PAT Margin (%) RONW (%) ROCE (%) Turnover Ratios Inventory Turnover Inventory Turnover Days Debtors Turnover Debtors Turnover Days Fixed Asset Turnover Working Cap turnover Creditors turnover Creditors Turnover days Per Share Ratios EPS (Rs.) CEPS (Rs.) Dividend paid (Rs) BV Per Share (Rs.) Capital Structure Debt/Equity Current Ratio FY05 8.00 8.40 3.60 17.40 15.47 FY05 3.9 92.9 72.50 5.00 5.10 4.06 19.72 18.26 FY05 3.5 4.7 0.5 20.1 FY05 1.3 2.8 FY06 7.80 8.00 3.40 12.20 11.14 FY06 3.7 99 127.40 2.90 6.00 3.12 14.87 24.22 FY06 4.8 6.3 0.5 39.2 FY06 1.1 3.4 FY07 6.60 9.50 3.70 11.00 11.06 FY07 3.7 99.9 78.80 4.60 4.80 2.33 15.21 23.67 FY07 8.2 10.7 0.5 74.4 FY07 1.2 4.9
- 30. Ratio Analysis (Competitors) Particulars for FY07 Inventory Days Creditors Velocity (Days) Debtors Velocity (Days) Particulars Total asset turnover ratio Debt Equity ROCE (%) Vishal Retail Pantaloon Shoppers’ Stop 99.9 99.1 36.72 23 6 44 4 0 3 Vishal Pantaloon Shoppers’ Retail Retail Stop 1.32 1.62 1.94 1.19 1.92 0.27 11.06 18.67 14.42 Company should improve its operational practices Increase the debtors turnover ratio Reduce the inventory days Maintains a fair amount of Debt/equity ratio as others Company has relative low returns Trent 50.41 58 2 Trent 0.98 0.14 10.25
- 31. Conclusion Sl. Metrics Competetive picture Observations Rating 1 Growth Parameters 70% CAGR 2 Margins Decreasing operating Least operating margins margins, but stable PAT Average 3 Trends Massive increases in assets & liabilities, Stable Largest & still expanding PAT Good 4 Ratio Analysis Profitability Turnover Per Share Capital 5 Altman Z Score Highest revenues still low margins, decreasing returns High inventory and creditors turnover ratio Good earnings but not so good dividend policy Stable Ratios Score of 3.005, under safe area Largest Revenue generator Excellent Average returns as others Average Poor compared to other players and cash blockage Poor Good performer Good In sync with other players Good ----- Good
- 32. FUTURE PLANS Source: SSKl Research
- 33. Thank You
Notas do Editor
- PRIL operates in 3 major segments: Lifestyle Retailing - These stores retail primarily non-food items such as apparel, footwear, accessories, cosmetics and household products. They stock multiple brands across product categories Eg:- Pantaloons, Central, Fashion Station, aLL, MeLa Value retailing - These stores primarily retail food and household items. These are large stores with volume based discounted prices. The USP of these stores are the discounts and offers available on almost all products, making them very affordable. Eg:- Big Bazaar, Food Bazaar Entertainment, Leisure and Sports
- Net sales have grown at about Compound annual growth rate of 70% from Rs. 444.4 Crores in FY03 to Rs. 3236 Crores in FY07. Pantaloon Retail has shown a growth of 74% in its sales turnover in FY07 compared to FY06 and is expected to maintain its growth momentum in future. Increase in sales is mainly attributable to increase in area under operations, which was 9.1 Lakh Sq. Ft. in FY04 and has increased to approx. 45 laks Sq. Ft. in FY07. It is on an expansion spree and plans to increase the retail space to 10m sq ft by the end of 2008 and take its further to 30m sq ft by 2010. The company is planning a capital expenditure of Rs 6,500 and an investment of Rs 7,000m for maintaining inventory and working capital for new stores. It will push up the depreciation and interest cost. Pantaloon will set up 60 Big Bazaars, 15 Pantaloon stores, 100 Food Bazaar and 20 more E-zones by June 2008. About 35% of the turnover is expected to be generated from the opening of new stores.
- The Company witnessed a decline in operating margin (EBIT) from 7.69% in FY05 to 6.8% in FY06, on account of increase in raw material cost. Increase in raw material cost may be due to discount offers at Pantaloons outlets due to increased competition. However, for the FY07 operating profits again have increased from 6.8% in FY06 to 8.3% in FY07 as company managed to reduce other expenditure and employee cost. Net profit (PAT) margin surged marginally from 3.43% in FY06 to 3.71% in FY07 on account of profit on sale of investment but is quite stable for over the years. Another important finding in this case would be of the cost incurred in rent, because of the fact that Pantaloon added 7 lakh square feet of retail space during 2QFY08 taking the total retail space to 67 lakh square feet. The company added 23 stores during the last quarter. Management expects that sharp increase of space to provide them economies of scale which actually can be seen in the financial statements.
- Although the company is a retail giant and no other competitor is even near to the sales achieved by the company but still when we talk about profitability and costs there are other players which are much better than Pantaloon. In the table above we can see that almost raw material costs, cost of selling goods are like some of the things which are similar with all the players. But if we see closely Pantaloon is the one having the lowest Operating profit margin of 6.66 as compared to the rest three. We will analyse this further in the later part of the report and conclude why is it happening and what could be done. Whereas when we see the net profit margin i.e. PAT as % of sales the company is doing average compared to Vishal Retail. We will analyse all of this in the further parts of the report.
- Looking on the Liabilities side in the balance sheet trend statement it is very clearly seen that company has tremendously increased its unsecured borrowings to around 347 Crores in 2007 from 4 Crores in FY2003, also the company has increased its shareholder’s fund a lot by retaining more and raising capital through equity over the time (this would be properly explained in the cash flow analysis). If we look closely in the asset side of the balance sheet we also see a huge growth in capital work in progress (inventory), cash balance and investments (as shown in the figure above). This is mainly due to the fact that the company is in its major expansion phase and is growing really good. The company is doing quite well despite the whole expansion phase.
- Although the company has seen major sales this year which has been increasing quite rapidly since FY04 but the profitability is not. It is quite clearly seen in the figure above that the operating profit is taking a dip and is lowest in the year 2007.As we can see the PAT margin is almost the same stable at 3.6-3.7. Operating margin has decreased considerably, the prime reason behind lower operating margins are higher cost of goods sold and employee cost. However, with economies of scale in operations the company managed to arrest the fall in OPM to an extent through lower power cost and other expenditure. Again we see dips in the Return on Capital Employed and Return on Net Worth. The main reasons for dip is due to the fact that the company is expanding rapidly with the help of shares and long term debts and these funds are blocked in capital work in progress either being inventory or infrastructure. In such case judging the company as a poor performer on the dip would not be fair and hence we conclude that the company currently is not performing up to the mark but when the expansion is complete the sales and the profitability would again increase.
- We see that Vishal Retail doesn’t have any credit policy as doesn’t allow any debtors and the creditor period is also quite less, but when we compare Pantaloon with its nearest competitor Shoppers’ stop we see that the company enjoys quite large inventory days and quite low creditors period which by the way both are not in the interest of the company. Players like Shopper’s Stop and Trent have negative operating cycle due to higher credit period from suppliers and less inventory block. In short we would like to conclude here that the company can do much better if it improves its operational practices. By looking at the complete picture portrayed by the table above we can see that that company has a high debt to equity ratio where as some of the companies have very minimal debt in their accounts. It has a relatively low Return on capital employed but in general the company is doing well and is full of potential.