Pantaloon eyes FMCG co in pure-play plan

Pantaloon Retail (India) Ltd, Future Group Ltd’s wholly owned subsidiary and country’s largest retailer, is  looking to acquire a fast-moving consumer goods company. The idea is to give itself access to a good manufacturing base and further its line of private label products across foods and personal care.

“Like earlier announced, we want to make Rs 10,000 crore from our brands across FMCG, electronics and apparels by 2012. We are looking at the acquisition option. Our ambition on the FMCG and brands side is large. We are looking for a company that would give us a good manufacturing base to grow across categories,” a senior company official said on the condition of anonymity.

The move comes even as Pantaloon is classifying itself into a pure-play retail player by demerging non-retail businesses. The pure-play unit may be called Future Value Retail.

Apart from running retail formats such as Big Bazaar, Food Bazaar, Central, Ethnicity, EZone, Celio and Pantaloons etc, the company also has non-retail businesses such as Future Media, Future Brands, Future Capital Holdings and Future Learning Services.

“The Big Bazaar hive-off will allow efficient use of capital and transform Pantaloon Retail into a pure retail player. It will allow investors direct exposure to pure discount retailing if and when Big Bazaar gets listed,” wrote Pragati Khadse, analyst with institutional brokerage IIFL, in a note to clients on Wednesday.

The process of hiving off value retail businesses — Big Bazaar, Food Bazaar and other related formats into the wholly owned arm — or Future Value Retail — will take place by beginning of calendar 2010.

A sector analyst, who did not wish to be named, said, “There are innumerable subsidiaries under the company; most of them are small in size. This made the company structure very confusing.” However, Pantaloon Retail will continue to treat its logistics arm Future Logistics as part of retail business.

The financial services units consisting of Future Capital and Future Insurance will be separated and listed. The process was approved by the company’s board recently. The demerger will result in creating separate companies that hold retail, financial services and other support businesses.

Pantaloon Retail is also in the process of transferring non-retail businesses such as Future Knowledge Services, Future Brands and Future Learning into a separate entity. Pantaloon aims to double its retail space in the next five years to 25 million sq ft.

Jamshed Dadabhoy and Aditya Mathur, analysts with Citigroup, in a note to clients on
Wednesday, said the consolidation will be positive for the parent’s balance sheet. “The cash-intensive financial services business can chart a growth path without dependence on Pantaloon Retail for capital infusion,” Dadabhoy and Mathur said.

“This creates possibility for a separate listing and infusion of foreign investment into Big Bazaar and Food Bazaar at a later juncture; and Pantaloon Retail’s resources to be conserved to meet growth aspirations,” they said.