De-merging fashion business into a separate entity will facilitate FDI into the cash-strapped Pantaloon Retail India’s (PRIL) major verticals such as Big Bazaar, Food Bazaar, Home Town and eZone, analysts said.
Earlier this month, the Kishore Biyani-owned firm, along with Future Ventures, which houses a few lifestyle brands, announced the de-merger of the fashion business into a separate entity, Future Fashion.
PRIL will also transfer R1,226 crore debt into Future Fashion, which will be listed later on. In May, PRIL had said it will sell a majority stake in Pantaloon retail format to Aditya Birla Nuvo.
In September, the government allowed FDI in multi-brand retail, although it is being severely resisted by opposition parties.
?The de-merger announcement will not help the company reap financial benefits, even if they claim so, because financially nothing is changing. However, it will do give PRIL, Future Fashion and Future Venture better valuation, and help them get foreign investment into one particular format,? said an analyst with an international brokerage who did not want to be named. “Investment will flow into specific formats, after which the formats could be hived off and made more tax-efficient.”
PRIL had long-term borrowings of R2,787 crore, whereas cash and bank balances stood at R337 crore as of June 30. The company’s shares have lost 8% of their value in the last one year.
?We have already exited our financial services business, and unlocked shareholder value through the de-merger and partnership of our Pantaloons format. This consolidation will now further unlock value for our shareholders and give them shares in independent attractive businesses,? Biyani while announcing the demerger.
Under the restructuring, Future Fashion, could comprise fashion brands including Central, Brand Factory, aLL and Planet Sports, as well as Future Ventures brands like Indigo Nation, Scullers, and Lee Cooper, among others.
?The de-merger will help the entities bring in management and investor focus,? says analyst Anbeesh Roy of Edelweiss. ?But yes, with this move, you cannot reduce debt.?
Another analyst said the everyone will be looking at same stores sales growth, which is not looking too bright right now. With this move, how will the company ensure a better bottom line, he questions. ?There will be a lot more restructuring that you will see, especially after FDI comes into effect.?