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Pantaloon Retail (India) Ltd.

Company Profile

Publication Date: 18 Jun 2010

www.datamonitor.comAsia PacificAmericasEurope, Middle East & AfricaLevel 46245 5th Avenue119 Farringdon Road2 Park Street4th FloorLondonSydney, NSW 2000New York, NY 10016EC1R 3DAAustraliaUSAUnited Kingdom

t: +61 2 8705 6900t: +1 212 686 7400t: +44 20 7551 9000f: +61 2 8088 7405f: +1 212 686 2626f: +44 20 7551 9090e: [email protected]: [email protected]: [email protected]


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Pantaloon Retail (India) Ltd. Page 2 Datamonitor

Pantaloon Retail (India) Ltd.


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TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts............................................................................................................... 4

Business Description...........................................................................................5

History................................................................................................................... 7

Key Employees.....................................................................................................9

Key Employee Biographies................................................................................10

Major Products and Services............................................................................13

Revenue Analysis...............................................................................................15

SWOT Analysis...................................................................................................16

Top Competitors.................................................................................................23

Company View.....................................................................................................24

Locations and Subsidiaries...............................................................................26


Pantaloon Retail (India) Ltd.TABLE OF CONTENTS


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COMPANY OVERVIEW

Pantaloon Retail (Pantaloon), a part of the Future Group, is a leading Indian operator of multipleretail formats. The company's leading formats include Pantaloon, a chain of fashion outlets; BigBazaar, a hypermarket chain; Food Bazaar, a supermarket chain; and Central, a chain of malls.Pantaloon has operations across 73 cities in India. It is headquartered in Mumbai, India and employsabout 33,500 people.

The company recorded revenues of INR63,477 million ($1,328.6 million) during the financial yearended June 2009 (FY2009), an increase of 25.6% over 2008.The operating profit of the companywas INR63,497.5 million ($1,329 million) in FY2009, an increase of 25.9% over 2008. The net profitwas INR1,405.8 million ($29.4 million) in FY2009, an increase of 11.6% over 2008.

KEY FACTS

Pantaloon Retail (India) Ltd.Head OfficeKnowledge HouseShyam NagarOff Jogeshwari Vikhroli Link RoadJogeshwari EastMumbai 400 060

IND91 22 3084 1300Phone

91 22 6644 2222Fax

http://www.pantaloon.comWeb Address

63,477.0Revenue / turnover(INR Mn)

JuneFinancial Year End

33,500Employees

523574Bombay Ticker


Pantaloon Retail (India) Ltd.Company Overview


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BUSINESS DESCRIPTION

Pantaloon Retail (Pantaloon or the company) operates multiple retail formats in both the value andlifestyle segments in India. It operates over 1000 stores across 73 cities in India, and occupies retailspace of about 12 million square-feet.The company offers its products in various lines of businessessuch as food, fashion, home and electronics, telecom and IT, general merchandise, leisure andentertainment, wellness and beauty, books and music. The company also offers products throughits Internet retailing store futurebazaar.com.

Pantaloon offers food products through retail formats such as Brew Bar, Cafe Bollywood, FoodBazaar, and Sports Bar. Brew Bar offers over 15 brands of domestic and imported beer. Brew Baralso offers snacks and set meals. Cafe Bollywood (Bollywood refers to the Indian film industry) is afast food retail chain offering eateries in a Bollywood ambience. It offers Indian street food, burgers,pizzas, and juices. Food Bazaar is a chain of supermarkets which offers pre-packed commodities.Sports Bar is a concept bar that focuses on the world of sports. Sports Bar offers domestic andimported spirits, beers and wines.

Pantaloon offers fashion related products under banners such as aLL, Big Bazaar, Blue Sky, BrandFactory, Celio, Central, Ethnicity, fashion@Big Bazaar, Lee Cooper Navaras, Pantaloons and PlanetSports. aLL is a fashion store for plus size men and women. It offers ready-to-wear fashionableclothes and accessories in western wear, Indo-western or ethnic wear in both formal and casualcategories. Big Bazaar is a fashion and general merchandise hypermarket. It offers fashion products,home furnishings, utensils, crockery, cutlery, and sports goods. Blue Sky stores offer branded and

private label sunglasses and watches. Some of the private label watch brands which Blue Sky offersare Cube, Koenig, RIG, Lombard and UMM. Brand Factory operates a chain of discount stores thatoffer branded apparel for men, women, and infants along with accessories, cosmetics, footwear,sportswear, luggage, and home linen at discounted prices. These discount stores stock fashionbrands such as Levis, Pepe Jeans, Dockers, Wrangler, ProVogue, Arrow, Nike, Adidas, Reebok,Louis Phillip, Allen Solly, Reid and Taylor, Gini and Jony, amongst others. Celio, a market leader inmen's ready to wear clothing in France, is retailed through selected stores of Pantaloons and Centralin India.

Central, the mall concept of Pantaloon, offer over 300 brands across categories such as apparel,footwear and accessories for women, men, children and infants, and the product ranges such as,music, books, coffee shops, food courts, super markets (food bazaar), fine dining restaurants, pubs

and discotheques. Central also offers services such as travel, finance, investment, insurance,concert/cinema ticket booking and bill payments. Ethnicity is a concept store in India to offer everythingIndian under one roof. Ethnicity stores sell merchandise for kids, fashion, costume and semi-precious

jewelry, Indian ethnic homewares, and ethnic accessories. Fahion@Big Bazaar offers fashion appareland accessories men, ladies, kids and infants at reasonable prices. Lee Cooper is a reputedinternational brand which is distributed through exclusive brand stores and large format stores suchas Central and Pantaloons. Navaras is a jewelry store that offers branded jewelry in a hypermarketset-up. Pantaloons stores offers fashion products such as casual, ethnic, formal, party and sportswear for men, women and kids. Planet Sports is a sports and lifestyle specialty retail chain with


Pantaloon Retail (India) Ltd.Business Description


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extensive offerings for sportswear and equipment across all categories including running, tennis,training, golf, fitness, basketball, motor sports as well as other lifestyle products.

In the general merchandise category, Pantaloons operates retail formats such as Big Bazaar, BigBazaar Wholesale Club, Blue Sky, Brand Factory, Central, Navaras, Pantaloon and Shoe Factory.Big Bazaar is a retail store chain in a hypermarket format that offer fashion products, home furnishings,utensils, crockery, cutlery, and sports goods. Shoe Factory, a footwear retail store chain offersbranded footwear and accessories to men, women and kids.

Pantaloon has presence in the leisure and entertainment space through an affiliated company,Galaxy Entertainment. Pantaloon's F 123, a gaming and entertainment zone, offers a range of gamingoptions ranging from bowling, pool, interactive video games, bumper cars along with fun foods andservices for junior and adult banqueting. The company also operates Bowling Co., a family

entertainment centre, in Mumbai. In a joint venture with Blue Foods, Pantaloon operates food courts,fine dine specialty restaurants, thali restaurants, banquets and multiple kiosks with brands such asCopper Chimney, Bombay Blue, Noodle Bar, Spaghetti Kitchen and The Spoon.

The company operates specialty stores in the wellness and health retailing. It operates Star & Sitaraand Fit & Healthy. Star & Sitara provides skin and hair related beauty services for men and women.Fit & Healthy section housed within Big Bazaars and Food Bazaars provides health products andhealth related tips, information and advice.

Pantaloon has presence in the books and music category through 'Depot' which offers books, musicCDs and cassettes, home videos, multimedia (CD-ROMs) products and gift items. In the home andelectronics retailing, the company offers the furniture, furnishings, home accents and electronic

products through Collection I, Furniture Bazaar, Electronics Bazaar, e-zone, Home Bazaar andHome Town retail formats.

In the telecom and IT category, the company offers products such as gadgets, mobile phones,accessories, download kiosks, airtime recharges, landline instruments, blue tooth accessories, andmobile trinkets.The retail store brands that offer these products are Gen M, One Mobile, and M Port.


Pantaloon Retail (India) Ltd.Business Description


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HISTORY

Pantaloon was incorporated as Manz Wear Private Limited in 1987. In the same year, the companylaunched Pantaloons trouser, India's first formal trouser brand. In 1991, Pantaloon launched BARE,the jeans brand. The company made its initial public offer in the following year. It also startedPantaloon Shoppe, a franchised menswear store across India in 1994. In the same year, Pantalooninitiated distribution of branded garments through multi-branded retail outlets throughout India. In1995, it launched John Miller, the formal shirt brand. In 1997, Pantaloon launched a family store,Pantaloons, in Kolkata, India.

In 2001, India's first hypermarket chain 'Big Bazaar' was launched. In the same year, 'Food Bazaar'was also launched. The company launched the 'Central' mall in Bangalore in 2004. In the followingyear, Pantaloon announced its plans of investing INR10 million ($0.2 million) in revamping ITinfrastructure in the following three years. It entered into an alliance with SAP, a business softwaresolutions provider, to implement its mySAP Business suite, SAP Advanced Planning Tool forMerchandise Planning and SAP Apparel and Footwear Solutions across the organization. In thesame year, Pantaloon also launched aLL, a store that caters to plus-size market.

The company's financial arm, Future Capital Holdings, launched the real estate funds Kshitij andHorizon, and the private equity fund Indivision in 2006. In the same year, Pantaloon launched multipleretail formats including Collection i, Furniture Bazaar, Shoe Factory, EZone and Depot. It entered a

joint venture agreement with ETAM Group, a French retailer of women innerwear, to market ETAMproducts through a network of 40 outlets in 20 cities in India. The company also entered a joint

venture with Generali, an Italian insurance company, in 2006, to foray into the Indian insurancemarket. Pantaloon entered an agreement with Ruchi Soya Industries, a producer and supplier ofedible oils, to expand its refined edible oil business in the same year.

The company launched futurebazaar.com, its online retail store in 2007. Future Office, a subsidiaryof the company, acquired the operations and management of Officedge, an online business tobusiness office products company, and entered the office products market. Staples, a US basedoffice products company, entered a joint venture with Future Office to establish 'Staples FutureOffice' for offering office products in India during 2007.

In 2008, the company decided to make four of its business divisions, including Big Bazaar, FoodBazaar, Specialty Retail Business Activities and Property and Mall Management Division, into

independent subsidiaries. In the same month, Pantaloon planned to invest INR3,000 million ($76.37million) in a retail joint venture with National Textile Corporation (NTC). It also entered into a jointventure with United Arab Emirates-based Axiom Telecom to establish 750 new mobile phones storesin India.

Pantaloon outsourced its IT operations across all its outlets to Wipro Infotech, an IT and businesstransformation service provider. Also, the company's flagship format opened its first store in Guwahati.eZone, Pantaloons electronics specialty store, launched a unique eZone Concept Store, which


Pantaloon Retail (India) Ltd.History


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would feature dedicated displays by numerous brands, instead of the conventional multi-brand,category wise displays. In Mumbai, the company opened its destination mall, Central, in Mumbai.

HomeTown, the company's retail store tied up with AQUAlife, Italy's leading supplier of luxury bathproducts in 2008. Under the agreement AQUAlife's products would be available at all Home Townstores. HomeTown also entered an agreement with ARAN Cucine, Italy's modular kitchen maker,for the DENOVO range of Exclusive Italian kitchens in HomeTown stores.

The company's flagship format, Pantaloons, opened its first store in Nagpur and Big Bazaar wasopened in Gwalior during the year. Also in 2008, Pantaloons subsidiary, Future Capital Holdingsmade an Initial Public Offering. Further, the company's hypermarket format, Big Bazaar crossed the100-store mark and total operational retail space of the company crossed 10 million square feetmark in 2008. Pantaloon acquired the rural retail chain, Aadhar which was present in 65 rural locations.

The company divested its holding in Alpha Future Airport Retail, a 50:50 joint venture companybetween Pantaloon and Alpha Group by the end of 2008.

Due to the uncertain external economic environment, Pantaloon initiated various cost control measuresand conducted scenario planning exercises in FY2008.These initiatives enhanced the efficiencyand productivity of the company.

In January 2009, the company's hypermarket format, Big Bazaar was launched in Zirakpur, a townof Mohali district and Tinsukhia, the business capital of Assam.

Celio, the hi-fashion French mens apparel brand marketed by Pantaloon in India launched itsexclusive store in Mumbai in March 2009. A range of intimate wear designed for the Indian woman

was launched in Pantaloons and Central Stores in October 2009. Winner Sports, a wholly-ownedsubsidiary of Pantaloon entered an agreement with SKECHERS, a global leader in the lifestylefootwear industry to license and distribute SKECHERS footwear and apparel in India.

In February 2010, Tata Teleservices in strategic partnership with Future Group launched new telecomBrand -T24- on GSM Platform.The alliance between the companies brings unique marketing conceptof Retailer-Telco Partnershipto Indiafor the first time.T24 services rollout is expected to beginin 2010. Pantaloon in association with Sachin Tendulkar co-created a brand, Sach and launched ofSach toothpaste in March 2010.


Pantaloon Retail (India) Ltd.History


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KEY EMPLOYEES

CompensationBoardJob TitleName

30968602 INRExecutive BoardManaging DirectorKishore Biyani

5683404 INRNon Executive BoardDirectorGopikishan Biyani

18794600 INRNon Executive BoardDirectorRakesh Biyani

Non Executive BoardDirectorVijay Biyani

442000 INRSenior ManagementDirectorVijay Kumar Chopra

558000 INRSenior ManagementDirectorShailesh Haribhakti

580000 INRNon Executive BoardDirectorS Doreswamy

540000 INRNon Executive BoardDirectorD O Koshy

400000 INRNon Executive BoardDirectorBala Deshpande

440000 INRNon Executive BoardDirectorAnil Harish


Pantaloon Retail (India) Ltd.Key Employees


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KEY EMPLOYEE BIOGRAPHIES

Kishore Biyani

Board: Executive BoardJob Title: Managing DirectorSince: 1997Age: 49

Mr. Biyani has been the Managing Director at Pantaloon since 1997. He is also the Chief ExecutiveOfficer at Future Group.

Gopikishan Biyani

Board: Non Executive BoardJob Title: Director

Mr. Biyani is currently a Director at Pantaloon. He is a commerce graduate and has more than twentyyears of experience in the textile business.

Rakesh Biyani


Mr. Biyani is currently a Director at Pantaloon. He is a commerce graduate and has been involvedin category management; retail stores operations, IT and exports.

Vijay Biyani


Mr. Biyani is currently a Director at Pantaloon. He has more than 20 years of experience inmanufacturing, textiles and retail industry and has been actively involved in the financial, audit andcorporate governance related issues within the company.

Vijay Kumar Chopra

Board: Senior ManagementJob Title: Director


Pantaloon Retail (India) Ltd.Key Employee Biographies


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Mr. Chopra is currently a Director at Pantaloon. He is a fellow member of The Institute of CharteredAccountants of India (ICAI) by profession and is a Certified Associate of Indian Institute of Bankers(CAIIB). Mr. Chopras banking career spans over 31 years and he has served senior managementpositions in Central Bank of India, Oriental Bank of Commerce, SIDBI, Corporation Bank and SEBI.

Shailesh Haribhakti

Board: Senior ManagementJob Title: DirectorSince: 1999

Mr. Haribhakti has been a Director at Pantaloon since 1999. He is the Deputy Managing Partner ofHaribhakti & Co. Mr. Haribhakti also serves on the Boards of Indian Petrochemicals Corporation,

Ambuja Cement Eastern.

S Doreswamy


Mr. Doreswamy is currently a Director at Pantaloon. He is the former Chairman and ManagingDirector of Central Bank of India and serves on the Board of DSP Merrill Lynch Trustee and Ceat.

D O Koshy


Mr. Koshy is currently a Director at Pantaloon. He holds a doctorate from IIT, Delhi and is the Directorof National Institute of Design (NID), Ahmedabad. He has 24 years of experience in the textiles andgarment industry. Mr. Koshy has set up NIFT centres in Delhi, Chennai and Bangalore. He is currentlythe Director General and Chief Executive Officer of ATDC Network of 58 Institutes / Centres andtwo premier campuses of Institute of Apparel Management.

Bala Deshpande


Ms. Deshpande is currently a Director at Pantaloon. She also serves on the Boards of DeccanAviation, Nagarjuna Construction, Welspun India and Indus League Clothing.

Anil Harish


Pantaloon Retail (India) Ltd.Key Employee Biographies


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MAJOR PRODUCTS AND SERVICES

Pantaloon Retail (Pantaloon), a part of the Future Group, is a leading Indian operator of multipleretail formats.The company's key products and services include the following:

Products:

AccessoriesBooksClothesElectronic productsEntertainment products

Food productsFootwearFurnitureGeneral merchandiseHealth and beauty productsSports goods

Brands:

Food:

Brew Bar

Cafe BollywoodChamosaFood BazaarSports Bar

Fashion:

aLLBig BazaarBlue SkyBrand FactoryCentral

Fashion StationLee CooperNavarasPantaloons

Home and Electronics:

Collection i


Pantaloon Retail (India) Ltd.Major Products and Services


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Electronics Bazaare-zoneFurniture BazaarHome BazaarHome Town

Telecom and IT:

Gen MOne MobileM Port

General Merchandise:

Big BazaarBlue SkyBrand FactoryCentralNavarasPantaloonShoe Factory

Leisure and Entertainment:

Bowling Co.F 123

Wellness and Beauty:

Fit & HealthyStar Sitara

Books & Music:

Depot


Pantaloon Retail (India) Ltd.Major Products and Services


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REVENUE ANALYSIS

The company recorded revenues of INR63,477 million ($1,328.6 million) during the financial yearended June 2009 (FY2009), an increase of 25.6% over 2008. For FY2009, India, the company'sonly geographic market, accounted for 100% of the total revenues.

Pantaloon generates revenues through one business division: retail (100% of the total revenuesduring fiscal year 2009).

Revenues by Division

In FY2009, the retail division recorded revenues of INR63,477 million ($1,328.6 million), an increaseof 25.6% over 2008.

Revenues by Geography

India, Pantaloon's only geographical market, accounted for 100% of the total revenues in FY2009.Revenues from India reached INR63,477 million ($1,328.6 million) in 2009, an increase of 25.6%over 2008.


Pantaloon Retail (India) Ltd.Revenue Analysis


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SWOT ANALYSIS

Pantaloon Retail (Pantaloon), a part of the Future Group, is a leading Indian operator of multipleretail formats. The company balanced its value and lifestyle portfolio there by having presence inthe mass market; this enabled Pantaloon to tap a large market and at the same time engage in highmargin business will sustain profitability for Pantaloon. However, high penetration of unorganizedretail players coupled with expansion of large foreign players increased the competition in the marketwhich might lead to market share erosion and high pressure on margins.

WeaknessesStrengths

High debt (compared to competitors) willincrease financial risk

Balanced value and lifestyle portfolioLogistics network and backward integrationwill improve marginPantaloon is a dominant player and isexpanding through collaborations andacquisitions

ThreatsOpportunities

Intensely competitive market with highpenetration of unorganized retailers is set

Booming Indian retail market and prefencesof the Indian middle class

to become even more so with entry of large

foreign players

Increased penetration of private labels will

improve marginsHigh lease rentals and investments willadversely affect profitability and expansionplans

Well positioned to foray into the onlinechannel through futurebazaar.com

Strengths

Balanced value and lifestyle portfolio

Pantaloons dominant presence in the value retail segments capitalizes on the attractive demographicprofile of the country. Indias major population currently is and in the future is expected to be in themiddle class income group. This group, by natural inclinations, prefers value retailing formats likehypermarkets, supermarkets, discount and convenience stores. Since value retail stores are usuallylarge, they serve as a one-stop shop for customers and offer distinct advantages of convenienceand time effectiveness compared to the small unorganized retail sector in India. In a survey conductedby KPMG, respondents chose value retailing formats like supermarkets, hypermarkets and discountstores to have the most potential for growth in the Indian market. Since value retail is a preferredformat in India, Pantaloon focused on formats catering to this segment. It launched Big Bazaar and


Pantaloon Retail (India) Ltd.SWOT Analysis


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Food Bazaar and expanded the formats aggressively in major eight cities of the country with favorabledemographics. The two formats increased their share over the years to reach 71.5% of the totalretail sales in FY2009.

While value retailing provides volumes on account of better bargains and lower ticket size, lifestylestores provide a better shopping experience and branded quality merchandise. Consequently,operating margin in the lifestyle segment is higher than that in the value retail segment. Hence,EBITDA margin in the lifestyle segment which includes Pantaloons, Central and Brand Factoryranges between 2023% while that of the value segment ranges below 15%. Pantaloon is increasingits focus on lifestyle stores to create a balance between value and lifestyle retailing, thereby providingcushion to its operating margin. Due to lease model, the margin in the Central format is highest at22.6% in FY2009, attracting major investments in this format. Pantaloon has balanced its value andlifestyle portfolio thereby having presence in the mass market enabling it to tap a large market at

the same time engaging in high margin business will sustain profitability for the business.

Logistics network and backward integration will improve margins

Pantaloon has a large and efficient logistics and inventory management system in place to cater toa large market.The companys logistic network that carries an average of two million pieces everydaywith peak single-day transactions reaching four million pieces. A fleet of over 800 vehicles from over4000 vendors to 50 warehouses to stores in over 70 cities are transported on a regular basis. Aspecialized company Future Logistic Solutions Limited (FLSL) handles all the related functions.During the year, Pantaloon rationalized the number of warehouses as fewer and bigger warehousesfacilitate economies of scale and at the same time, consolidation of merchandise in fewer locationshas also resulted in higher product availability and wider choice to customers. The company created

highly automated Distribution Centers (DCs) that ensured higher vertical space utilization and higherthroughputs. Implementation of advanced Warehouse Management System (WMS) and AutomaticReplenishment System (ARS) has significantly improved inventory visibility across warehouseswhich will facilitate improved order fulfillment and accuracy. PRlL has also set up a hub, where ittakes the delivery now instead of to separate warehouses. This has led to higher efficiency in costsand higher inventory turnover.

Another significant step that Pantaloon has taken is to reduce intermediaries. Until now, there werethird parties handling the fruits and vegetables category at its various Big Bazaar and Food Bazaars.Pantaloon, which till now outsourced the procurement, has now decided to set up a separate divisionheaded by Mr. K. Radhakrishnan who had established Food World for Spencer's and was handlingthe hypermarket and value retail format at Reliance Retail. Pantaloon also took advantage of the

downturn last year to cut out intermediaries in its supply chain.To reduce its reliance on wholesalers,it approached oil mills, rice mills and other suppliers directly to save costs.

However, with economies of scale rising from increased space under operations, cost reductionmethods and adoption of better inventory management and supply chain management systems, theoperating profit margin of the company improved to 10.5% in FY2009 from 6.7% in FY2007.Theefficient logistics and inventory management is a competitive advantage in an environment wheremargins are low and competition is further pressurizing them.




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Pantaloon is a dominant player and is expanding through collaborations and acquisitions

Pantaloon is one of the largest retailers in India. It demonstrated aggressive growth in recent yearsand touched over 12 million sq ft in retail space. The company has tied up around 10 million sq ft.of retail space with developers at rentals lower than industry average. Foot falls increased from 115million in 2007 to 163 million in 2008 and 185 million in 2009. Pantaloon has also has highly successfulconversion rates from 41% in 2008 to 43% in 2009. Average ticket size increased from INR750($15.7) in 2008 to INR792 ($16.6) in 2009, all the factors contributing in increasing the revenuesfurther strengthening the companys presence. According to industry sources Food Bazaar capturesaround 28% of total sales of FMCG products in modern retail. In certain cities like Ahmedabad, Puneand Kolkata, this share is close to 50%.This formidable share allows Pantaloon to define the market,build new categories and develop new brands in the FMCG space. Globally, Pantaloon is the fastestto achieve the first 100 hypermarket stores expansion through organic growth, indicating the high

rate of penetration into the market.

To further strengthen its presence Pantaloon has also focused on inorganic expansion. In 2010, thecompany has acquired a South Africa-based Shoprite Holdings' store in Mulund area of Mumbaiand renamed it as FoodRite. Similarly, Pantaloon also formed a 50-50 joint venture with the UK-basedC&J Clark International to engage in wholesaling of Clark's branded products in India. C&J Clark isone of the largest makers of casual shoes in the world, manufacturing brands like Clarks, Bostonianand K Shoes for men, women and children. Also, Future Group entered an agreement with Frenchretailer Carrefour, to open the Carrefour branded franchise stores in India. The company has plansto open between 150 and 300 Carrefour-branded hypermarkets in the next 5 years.The deal willallow Future Group to source products and seek technical, technological and other expertise fromCarrefour. Such a tie-up would give Pantaloon access to a larger investment war chest. Pantaloon

in collaboration with Capital Foods, a FMCG company, is also planning to form a special purposevehicle (SPV) to set up two mega food parks with an investment of INR3000 million ($62.7 million).

The company through its established presence is able to capture a large addressable market. It willbe able to flex its muscle to improve efficiencies in pricing and supply chain. Additionally, the strongpresence and aggressive expansion will better equip Pantaloon to effectively deal with competitionwhich has intensified in the market.

Weaknesses

High debt (compared to competitors) will increase financial risk

The company reported debt of INR28,500 million ($595.7 million) at the end of FY2009, whichtranslates into a debt to equity ratio of 1.25 times. Comparing Pantaloon with its Asian peers, thecompany has high debt. Its Asian peers have far lower debt to equity. For instance, 0.13, 1.02, 0.59,0.5 and 0.04 are the debt equity ratios of Lotte shopping, Parkson retail group, Lifestyle InternationalHoldings, Golden Eagle Retail Group and Giordano International respectively. Interest and financialcharges outflow has increased from INR1,852.7 million ($38.7 million) in 2007-08 to INR3,182.2million ($66.5 million) in 2008-09. The increase in interest and financial charges is on account of




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additional borrowing for funding the growth plans. As a result, the interest and financial chargescover during the year under review has fallen down to 2.12 times as compared to 2.51 times in thepreceding year. Additionally, weighted average cost of borrowing has marginally increased from11.15% to 11.37% on account of higher cost of funds/ borrowings driven by market conditions.

Pantaloon has raised funds through qualified institutional placement during 2009 and the debt equityratio would reduce to a certain extent in 2010. However, Pantaloon will need additional debt for itsexpansion plans.The retail business runs on wafer thin margins and, hence, internal accruals willnot be sufficient to fund expansion plans. Consequently, higher debt might be required to fund theexpansion. High interest rates are recurring expenses which will affect the margins adversely. Higherdebt also increases the risk in the business as the interest and finance cover reduces. A direct impactof this is that cost of capital would further increase, making it even more costly to fund the expansion.Therefore, high amounts of debt will raise the cost of funding and also increases the amount of

recurring expenses for Pantaloon.

Opportunities

Booming Indian retail market and prefences of the Indian middle class

The retail industry in India is large owing to a large population and is set to grow as several factorscontribute. Industry reports forecast that total retail sales will grow from INR16.3 trillion ($353.0billion) in 2010 to INR25 trillion ($543.2 billion) by 2014. Strong underlying economic growth,population expansion, the increasing wealth of individuals and the rapid construction of organizedretail infrastructure are key factors behind the forecast growth. Also, as middle and upper classconsumer base expands, there will also be opportunities in India's second and third-tier cities. Thegreater availability of personal credit and a growing vehicle population are to improve mobility whichwill also contribute to a trend towards annual retail sales growth of 11.4%. India's nominal GDP isa forecast at $1.52 trillion in 2010. Average annual GDP growth of 7.8% is predicted through to 2014,making it one of the fastest growing economy in the world.With the population expected to increasefrom 1.19 billion in 2010 to 1.25 billion by 2014, GDP per capita is forecast to rise by over 75% bythe end of the forecast period, reaching $2,238. The consumer spending per capita is estimated toincrease from $793 in 2010 to $1,160 in 2014.

Another key advantage is the low penetration of organized retail which provides immense scope forPantaloon. Organized retail, or large chains, make up only 6% of the market but is expected to

expand at 20% a year.This is driven by the emergence of shopping centers and malls, and a middleclass of close to 300 million people that is growing at just under 2% a year, according to data fromNational Council of Applied Economic Research (NCAER) and World Bank. Mass grocery retail isunexploited to the full potential and sales in India from this channel are forecast to undergo enormousgrowth. Industry sources predict that sales through mass grocery retail outlets will increase by 154%to reach $15.29 billion by 2014.This is a consequence of shift from small independent retailers tolarge, modern outlets. Pantaloon has established its presence in the market and is a dominant player.Its aggressive growth plans through organic and inorganic means will enable it to effectively tap intothe high growth market.




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Increased penetration of private labels will improve margins

Pantaloon has been focusing on increasing the share of private label sales.These labels are pricedlower than national brands while having better margins. Pantaloon has created many private labelbrands that are sold under various formats like Pantaloons, Big Bazaar, Food Bazaar, Home Town,Brand Factory and E-zone. The share of private labels is different for various segments operatedby the company. Its share in the fashion and electronics segment is higher at 80% and 20%,respectively, while that in food and general merchandise is lower at 5-8%. Pantaloon has beenlaunching private labels in FMCG category. It has launched Fresh and Pure (food and staples),Cleanmate (home care), Caremate (personal care products), Tasty Treat (food, snacks, cola andsoft drinks) and Premium Harvest (packaged pulses and rice).The company plans to launch moreprivate labels in the FMCG space to generate better margins from the segment. Currently, privatelabels contribute 20% to Pantaloons top line, and Pantaloon expects to increase its share to 25%.

While the national brands have margins at 12 to 17%, the private label margins are as high as 25to 40%. Increased penetration of private label brands through new launches will enable the companyto increase the profits affecting profitability positively.

Well positioned to foray into the online channel through futurebazaar.com

Pantaloon launched futurebazaar.com through Futurebazaar India Ltd (FBIL), to leverage on severaladvantages that the channel offers. E-retailing reduces the capex and increases the reach of thecompany at minimal extra cost. It also reduces costs like rental, employee cost and inventory carryingcosts which would have to be incurred in a brick and mortar format. It creates time utility for customersby saving travelling cost for the customer and transportation cost for the company. Pantaloon isfurther is further creating synergy in both the brick and mortar format and e-retailing by providing

similar deals on both platforms.The online customers were offered the same deals like that areavailable at Big Bazaar. Furthermore, Pantaloon combined the online portal with catalogue retailingthrough kiosks located in malls and shopping centers to attract a new set of customers. The Indiane-commerce market is set to boom and as the e-commerce market in rest of the world is growingat 8-10%, Indias e-commerce is estimated to grow well above 30%. Pantaloon through its presencein the segment will be able to increase the potential customer base and will effectively participate inthe booming e-commerce market.

Threats

Intensely competitive market with high penetration of unorganized retailers is set to become evenmore so with entry of large foreign players

Indias retail environment is characterized with a large pool of independent retailers who are currentlydominant players in the market. There are close to 12 million independent retailers with a marketshare of close to 94%. These independent retailers have low operational costs and require very lowstart up costs. Hence, the penetration into the markets is higher and their small formats provide aunique advantage of convenience compared to large organized retailers. Also, the kirana stores (asindependent small retailers are referred to) stock only the products that are highly suitable for their




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customers as they specialize in serving a selected group of customers and are well aware of theneeds and requirements. Additionally, these stores also provide high customer service and informalcredit service as well, which makes them the preferred retailers for a large pool of customers in India.The customer perception of value is higher for these kirana stores.The shift in this perception willtake some time to set in and until then organized retail has to increase efforts to capture a largeaddressable market required to leverage the high start up and operational costs of these organizedretailers like Pantaloon.

India has been ranked first on Global Retail Development Index, 2009 signifying that the Indian retailsector is at a peaking stage, is developing quickly and is ready for modern retail. This has made thenext three to four years the best time for foreign retailers and other Indian corporate retailers to enterIndia. It is also the perfect time for existing players to undergo aggressive expansion.This lead tolarge Indian players like Reliance Industries, Aditya Birla Group and Bharti Air tel to expand

aggressively to tap the huge growth potential opportunities. According to the current FDI norms,foreign companies are not allowed to own stakes in multi-brand retail businesses, a rule designedto protect India's vast independent retail sector.The prospect of a rule change has seen local playersexpand fast in order to secure a dominant position before the seemingly inevitable arrival ofmultinationals, while it has also seen multinationals enter the country through wholesale joint venturesin order to begin building functions for a time when they can operate alone. The recent uptick inexpansionary investment is also a product of growing sentiment suggesting that the governmentmight reverse its restrictive stance on international investment.

Additionally, several large international players have entered the Indian market.Wal-Mart has a jointventure with Bharti Enterprises and it has launched two wholesale stores and plans to open another10-12 over two-three years.Tesco, the UK's largest retailer has a tie-up with Trent for a franchise

agreement for its hypermarket chain. Germany's Metro has its own cash-and-carry business, whichoperates under its own brand name. In the lifestyle segment, UK's Marks & Spencer operates anapparel retail chain and has a joint venture with Reliance Retail.

Although India is a large country with immense opportunities most of these players are enteringthrough large metro areas where the market is mature and there are large players competing.Pantaloon derives 60% of its revenues from top eight cities in the country. Increasing number ofplayers entering the market will intensify the competition leading to margin pressure. Additionally,the organized retail is a nascent stage and although set to grow at a fast pace, the player arecompeting with in the 6% of Indias retail market. And the prospect of retail liberalization has seenan aggressive investment by the Indian peers to expand the market share. All these factors haveincreased the competition in the market which might lead to market share erosion and high pressure

on margins.

High lease rentals and investments will adversely affect profitability and expansion plans

The lease rentals and infrastructure investments have led to the retail sector in India being that ofhigh investment and low return business. Rentals in India are considered to be among the highestin the world and account for 10% to 15% of the retailers operating cost.The percentage in othercountries is as low as 4% to 5%. According to industry experts, retailers in India can sustain rents




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of INR150 ($3.1) per sq. ft per month if they do business of about INR15,000 ($313.5) for the samespace in that time. However, rents had topped INR650 ($13.6) per sq. ft per month in New Delhi,INR478 ($9.9) in Noida and INR385 ($8) in Gurgaon, some of the largest metropolitan regions inIndia.The rents are very high for the business as according to the company estimates the per squarefeet sales are to come in the vicinity of INR9,000 ($188.1) per month as the economy revives.

Another factor that restricts the availability of desirable retail space is that malls and large retailcomplexes are developed only in few top cities in the country. According to estimates made, at least750 malls are being built in the country and retailers in cities such as - Mumbai, Delhi and Chennaisee cannibalization due to presence of retailers who offer the same goods and services.

Furthermore, Indian infrastructure remains hugely underdeveloped and this necessitates massivesupply chain investments before a single store, let alone a nationwide network, can be opened.This

challenge will remain a big one for large retailers like Pantaloon to develop a national chain, specificallyto penetrate into rural India.

These factors have contributed to the investments being large and the operational costs are alsohigh owing to high lease rentals, high oil prices and high labor costs.These factors have beenconstantly pressurizing the returns on investments and profitability and have been acting as barriersfor quick expansion. Pantaloons margins might be adversely affected owing to such high costs.




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TOP COMPETITORS

The following companies are the major competitors of Pantaloon Retail (India) Ltd.

Shoppers' StopMetro AGReliance Industries LimitedWills LifestyleTrent Ltd.Spencers Retail


Pantaloon Retail (India) Ltd.Top Competitors


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COMPANY VIEW

A statement by Kishore Biyani, Managing Director of the company is given below.This is taken fromthe company's 2009 annual report.

Much like the economic environment of the past year, your organization too weathered a challengingbusiness scenario and went through a phase of rapid transformation. It gives me immense pleasureto present before you the Annual Report for the Financial Year 2008-09. As you will notice, the reportcaptures the transformation of an organization into a far more efficient and focused entity that gainedstrength from its commitment to Rewrite Rules, Retain Values,and is building a strong foundationfor long-term, sustainable and profitable growth.

During the past couple of years, we had moved into a fairly high-cost economy and much like otherorganizations, we were paying a higher price for almost every business input whether it was talent,real estate, energy or resources.While all of us were cognizant of this scenario, the changes in theexternal environment forced us to act swiftly and decisively in bringing down costs and improvingefficiency and productivity. At the same time, we worked harder on innovation and enterprise to offermore value to customers and make our retail chains the preferred destination for every segment ofthe society.

At a strategic level, we also identified four categories that we will focus on. These categories capturemore than 60% of the consumerswallet. The categories are fashion, food, general merchandiseand home, which include consumer electronics and furniture. In each of these categories, we worked

diligently to bring in productivity and efficiency to increase square foot sales.We are working on andhave achieved considerable progress in increasing margins in every key category.We have alsoworked hard in allocating resources to businesses in a manner which give us better returns, fasterbreak even and faster return on capital. With all these corrections we believe that your company willyield more positive results beginning with the forthcoming year.

With the opening of nearly 14 new Pantaloons stores in the forthcoming year and another about6-odd Central stores, the share of the fashion category and the lifestyle business is expected to goup. Despite the economic environment, your company has been able to maintain healthy growth insame store sales. As the economy improves and consumer sentiment turns buoyant, we expect theper square feet sales to come in the vicinity of Rs 9,000 per month. At the same time, your companywill be focused on bringing down its inventory levels, containing it costs and generating higher return

of capital employed.

At the macro-economic level, the Indian economy is expected to cross $2 trillion during the nextdecade and more than a half of this will be contributed through private consumption demand.Economic growth, coupled with the growth of modern retail will help grow consumption of value-addedproducts in the economy. In turn this will help create new categories of consumption.Your companywill not only benefit from the growth of consumption demand, but is also among the few organisations


Pantaloon Retail (India) Ltd.Company View


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that are primed to benefit from the growth of value added products through its presence across thevalue chain - from sourcing, branding, distribution to retailing to end-consumers.

I believe that all of us are proud to have created this organization with a culture focused on corevalues that can build upon itself in a positive manner. This has ensured that we sustain what isunique to us as we grow.

For long, we have resisted the temptation of setting up a corporate social responsibility departmentthat has a select few employees working with a defined budget and regularly speaks out on thegood workthat it does. The primary reason for this is as an organization, we could never find adifference in the work we do every day and the good workthat a responsible organization is supposedto do.

One of the biggest joys of being in the business of modern retail and that too in the context of theIndian economy is that it allows us to get in touch with millions of stakeholders and act as a positivechange agent in society.Whether it is through providing consumers a larger choice of quality products,helping small and medium supply partners and entrepreneurs develop markets for their productsand services or generating employment for those who come from economically and sociallymarginalized sections, the business of modern retail gives us the largest possible canvas to createnew opportunities for people and transform societies and communities.

It has always been our belief that being an ethically, socially and environmentally responsibleorganization is the best and the most efficient way to earn the trust and goodwill of millions ofcustomers and stakeholders. As a sustainable business that nurtures its supply partners, whichcares for its community, empowers its employees and strives to be a positive change agent in society,

we are confident that your company will be the one which retains the trust of society and builds astrong foundation for long-term, sustainable growth.


Pantaloon Retail (India) Ltd.Company View


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LOCATIONS AND SUBSIDIARIES

Head Office

Pantaloon Retail (India) Ltd.Knowledge HouseShyam NagarOff Jogeshwari Vikhroli Link RoadJogeshwari EastMumbai 400 060INDP:91 22 3084 1300F:91 22 6644 2222http://www.pantaloon.com

Other Locations and Subsidiaries

Pantaloon Retail (India) Limited West ZonePantaloon Retail (India) Limited East ZonePlot No. 11703-097, Fourth FloorRoad No. 18Block No - BG, Plot No.5Opp. Army & Navy PressAction Area - 1BMIDC, Marol, Andheri EastBlock By Block Shopping MallMumbai 400 093Kolkata 700 156INDIND

Pantaloon Retail (India) Limited South ZonePantaloon Retail (India) Limited North ZonePasadena No 18 13rd Floor Plot Number 8210th Main Ashoka Pillar RoadSector 32Before Rani Sarla Devi SchoolNear NIIT Corp Office1st Block JayanagarGurgaonBangalore 560 011Haryana 122 001INDIND


Pantaloon Retail (India) Ltd.Locations and Subsidiaries

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