According to a report prepared by Alchemy Share & Stock Brokers Ltd, Pantaloon has struck the right cord in terms of its business model but seriously needs infusion of long term equity funds.
On the other hand, Tata group firm Trents biggest strength is the surfeit of cash it has, though the key concern remains its inability to pull off a plain grocery model, the report states. Citing an example of Pantaloon Retail in terms of a high gearing, the report states that the company is stretched for cash with an over-leveraged balance sheet. Pantaloon Retail has a debt to equity of 1.9, while global players like Carrefour, Target, Sears and Royal Ahold have it at 1.5, 1, 2 and 4, respectively. Though the debt-equity ratio of Pantaloon is comparable with the other global retailers, the risk of failure for an organised Indian retailer could prove to be the death-knell for a leveraged balance sheet, the report states. The non-availability of industry status to organised retail has resulted in virtually no tap for capital, land or even quality people.
Few banks and institutions have been willing to invest in retail operations given the lack of tangible asset security. Moreover, constraints on foreign direct investments (FDI) have also prevented the entry of leading global retailers from making an entry in India, the report stated.
Pantaloon is Indias largest listed retailing story with an existing network of 14 departmental stores (Pantaloon) and four hypermarkets (Big Bazaar), together accounting for nearly 3.5 lakh square feet retail space in the country.
Trent has nine attractive properties with 1.50 lakh square feet. However, Trent, the report states, continues to deter its venture into food-retailing segment. While Trents ability to deliver in the apparel retail model has been proved, we remain sceptical of its ability to pull off a plain grocery model, the report says. This is because food retailing entails a different dynamic wherein scale will be the critical deciding factor, the report adds.
Among the other factors hampering the growth of retail trade in India, the report enumerates multiple causes for the low level of modernisation of Indian retail.