Pantaloon’s retail hive-off by February

Pantaloon Retail (India) Ltd, the country’s largest retail player that is restructuring its business by hiving off retail divisions — Big Bazaar and Food Bazaar — into a wholly owned subsidiary, is set to complete the process by January-February 2010.

The company in order to become a pure retail player and to efficiently use capital for greater flexibility in expanding retail operations had decided to demerge the retail business from non-retail ones such as Future Brands and Future Knowledge Services.

The retailer is also looking to unlock value in the financial services business that includes Future Capital, this year.

The overall restructuring could take up to six months.

“No timeline is possible yet,” Sandip Tarkas, president, customer strategy, Pantaloon Retail, said. “It should take six months on the outer limit,” he said.

Analysts Hozefa Topiwalla and Kalpesh Makwana of Morgan Stanley Research in a report dated December 17, 2009, said, “The restructuring of its financial services/insurance subsidiaries is progressing; however, it is likely to take at least another six months before the entire restructuring is complete.”

Pragati Khadse of IIFL Research in a note to clients this week, wrote, “We maintain our positive view on the ongoing restructuring in the company, as it will:

1) allay fears of funds being diverted from the core retail business to capital-intensive businesses such as insurance; and

2) allow the Big Bazaar format to chart its own growth, as funding is done at BB level and as funding constraints are removed; and 3) allow the induction of a strategic investor into Big Bazaar, which can spur further growth in the business in the form of franchising, cash-and-carry or licensing.”

Pantaloon Retail is looking to invest Rs 360 crore this fiscal for its retail space expansion. Last month the company managed to raise Rs 500 crore through QIP (qualified institutional placement). It plans to keep adding 2.3 million square feet retail space every year.

Currently, Pantaloon operates over 12 million sq ft of retail space across the country, under formats, such as Pantaloons, Central, Big Bazaar, Food Bazaar, Home Town, Ethnicity and others.

Big Bazaar and Food Bazaar account for 70% of Pantaloon’s (standalone) revenues and 67% of its total retail space. The company’s same-store sales growth across lifestyle and value retail has been showing double-digit growth on strong consumer offtake, while home retail has started to turn positive.