Will bounce in Pantaloons, Future Cap be short-lived? Yes and No

Pantaloon Retail’s stake sale in its financial services arm Future Capital to US private equity (PE) investor Warburg Pincus for Rs 560 crore will help the company trim down its massive debt and reduce interest payments.

The deal is a part of the cash-starved Kishore Biyani-led Future Group’s intention to exit from non-core businesses to pare down debt. Since the PE is investing an additional Rs 100 crore in the business and the current management will continue to run the company, investors have reacted positively. Shares in Pantaloon Retail and Future Capital have been surging, trading higher for the second consecutive day. While Pantaloon Retail is up 2 percent, Future Capital is up 7.5 percent in afternoon trade (2 pm)after surging 9 percent on Monday.

[caption id=“attachment_332736” align=“alignleft” width=“380” caption=“The deal is a part of the cash-starved Kishore Biyani-led Future Group’s intention to exit from non-core businesses to pare down debt. AFP”]  [/caption]

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

Most analysts have given the deal a thumbs up. But will the enthusiasm be short-lived?

Jagannadham Thunuguntla, Equity Head, SMC Capital, does not expect a rally in Pantaloon Retail as the deal had already been factored in by the market. Moreover, with Pantaloon’s overall debt levels still high, the market will only expect more earnings visibility after three or more rounds of restructuring. “The upside for Pantaloon Retail is fairly limited on debt concerns. From Future Capital’s point of view, because of the Rs 162 price and the open offer anticipation, the downsides are limited,” Thunuguntla told ET Now.

In a desperate bid to rein in its debt, Kishore Biyani has been looking at various options like selling non-core assets and reducing debt. From a Rs 9,000 crore debt pile in April, the company is now down to around Rs 5,000 crore in just two months by selling stakes in two key assets. Earlier in May, Future Group sold a stake in the company’s branded apparel retail chain Pantaloons to Aditya Birla Nuvo, which will help it cut down debt by Rs 1,600 crore. “Post the two deals, Pantaloon Retail’s interest coverage ratio will come down below one as compared to 1.25 currently in FY13. " reported NDTV.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

Biyani, in an interview with CNBC-TV18, said: “Thedeal will strike off Rs 4,300-4,400 crore of debt from our consolidated balance-sheet andhelp reduce the debt-equity ratio to less than 1:1 based on earlier transactions which we have announced.”

But if the company plans to be debt-free by the end of this fiscal year, it either needs to sell more assets or cut down its expansion plans. Future Group runs Big Bazaar, Home Town and several other retail chains and has been crippled by mounting debts.

According to Newswire18, Pantaloon Retail is also likely sell its stake in Staples Future Office Products, its joint venture with Staples Inc, by 30 June for Rs 200 crore and in its insurance joint venture with Italy’s Generali Group by December for around Rs 1,000 crore.