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Saturday, September 19, 2009

Pantaloon Retail and Rolta India Ltd:Future growth prospects and outlook

1)Scripscan:Pantaloon Retail (India) Ltd

Story:Pantaloon Retail can be bought with a target price of Rs 422. I maintain my investment thesis regarding improving business outlook and availability of capital to fund growth plans. Consumer demand has picked up sharply in the last two weeks, and the company has various alternative funding plans to expand its business. The management has also expressed its intention to improve transparency through better communication with investors. According to the management, consumer spending in categories is nearly back to the peak witnessed in the last 18 months. Home Retail had been particularly badly hit in this downturn; it is now witnessing a sharp reversal in growth trend, particularly in the furniture and furnishings segments.PRIL is also evaluating various plans that include private equity investments in subsidiary companies and/or restructuring the group to ensure that Pantaloon Retail does not need to fund non-retail, finance subsidiary companies.A good long term investment.

2)Scripscan:Rolta India Ltd

Story:Management indicates that order inflow continues to improve and that the company is on track to meet its FY09 guidance. Rolta is in advanced stages of signing several new domestic infrastructure and defence-related orders, but these are unlikely to make the order book immediately with client go ahead still pending.The international business will likely remain subdued, however, until oil capex and enterprise IT spending improves. BNP Paribas'' earlier margin assumptions were conservative - management expects flattish wage costs in FY10, while pricing could be better than the expectation on sales of newly launched solutions. Also note the current order book provides 65% revenue visibility for FY10E. The target price rises on higher FY10/11E and medium-term projections, and implies FY10/FY11E P/Es of 11.4/10.0x. The latter is in line with the historical average and higher than the trough cycle of 6.8x P/E earlier. While the company may have missed the opportunity to buy back the FCCBs earlier in the year when the prices were much lower, any buyback at a discount is still positive as it reduces debt in the books and hence a likely heavy payback in 2012.Hold and buy at dips.

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