Aditya Birla Nuvo stake sale to give some relief to Pantaloon Retail

Stake sale in subsidiary to Aditya Birla Nuvo, will give Pantaloon Retail some breathing time until FDI in retail kicks in. Post this development, the company’s debt will come down by Rs 1,600 crore or around 20% of the total debt and its quarterly earnings will rise by about Rs 35 crore. The company posted net profit of Rs 4.40 crore in the quarter ended December.

This will give some reason to its investors to cheer about in short-term. The company has been struggling with high debt, which has more than doubled over the last two years. The company’s debt as on June 30, 2011 was Rs 7,846 crore which could have increased in FY12.

The company’s biggest concern at present is to improve its profitability and reduce its debt. And the stake sale will help the company to achieve that partially. The debt will come down by 20% and PAT margins will improve substantially.

According to the deal, AB Nuvo will invest Rs 800 crore as debenture in Pantaloon Retail format which will be demerged. Post demerger, the debentures will be converted into equity. Also the demerged entity will carry a debt of Rs 800 crore on its balance sheet, reducing Pantaloon Retail’s debt by Rs 1600 crore.

Yet, the company’s debt continues to remain high. PRIL is looking at various restructuring options to bring this debt down. It is looking to sell stake is some of its subsidiaries. However, Monday’s stake sale will help company to address its debt concern partially.