No faith in PM, retailers in dire need of funds

Nobody believes the PM, certainly not the markets.

Retailers Pantaloon and Provogue moved higher immediately after the Prime Minister said that retail in FDI will be cleared by March 2012, but within minutes the stocks were trading lower.

In fact all retail counters are trading well below the levels from where they started when FDI in retail was cleared by the commerce minister.

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Pantaloon is trading at its two-year low, while Provogue trades at levels never seen by the company since it got listed. Vishal Retail too trades at an all time low level. In fact today it has hit the lower circuit at Rs 14.30 in complete disrespect to the PM’s statement.

Financials of all the retail companies suggest that they are in dire need of funds. The results for the first of the year of all the companies suggests that they are in a working capital fix and are desperate for more money.

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With an already skewed debt to equity ratio, retailers were relying on equity funding to meet not only their capital but also thesustenance money in some cases. Interest cost is eating away a substantial amount of operating profits, leaving very little to invest in growth.Companies like Vishal Retail are making operating losses, and have little recourse but to either cut cost or sell assets.

Retailers have over invested in new capacities and need money to complete these projects.

The government’s decision to put the FDI decision on the backburner came in the face of sustained protests that FDI in retail will hurt small grocers and shopkeepers.