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
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
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
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.