'Wait and watch' for Pantaloon Retail in long term: Harendra Kumar, Elara Capital

In a chat with ET Now, Harendra Kumar, Head of Institution Broking and Global Research, Elara Capital, shares his views about Pantaloon Retail.

ET Now: Let’s start with the newsmaker which is Pantaloon Retail. Pantaloon Retail has sold their branded retail business to Aditya Birla Group. Do you think Pantaloon Retail in the near term, after this news, could easily appreciate by 10% to 15%?

Harendra Kumar: On the contrary, this is just one of the means to clean up the balance sheet as this tells you that there is stress in the system. Whether the stock is undervalued, is anybody’s guess. But, potentially given that the FDI norms in retail have not come across, this move is to sort that matter out. Retail stocks per se are under stress. The scene on consumption, on the textile side is not exactly positive. Short term pop yes, but for long term, at the moment, it is still wait and watch.

ET Now: Why do you say that because if I look at the dynamics of this deal, Pantaloon Retail will get about 1600 crore that will reduce their debt burden, their total interest outgo will reduce, the fact that now they will be left with more concentrated business, they will have more options to raise money. Why do you think after the initial pop, Pantaloon Retail will underperform?

Harendra Kumar: They have a debt of around 7000 crores. To manage that kind of size of debt, this is not exactly so large in order to sort out the issue. My key point is, this is after the large build-up to 2008 in terms of the store formats and adding a lot of square feet. They are in adjustment mode currently. This adjustment will continue. This is positive news, I am not saying that this is anyway a negative news. But, what I am saying is in terms of your growth preferences. The stocks that are available in the market, they have turned around more robustly.