Registered OfficeKnowledge House, Shyam Nagar, Off Jogeshwari-Vikhroli Link Road, Jogeshwari (E), Mumbai 400 060. IndiaP +91 22 3084 1300 F +91 22 6644 2201 www.pantaloonretail.inThis report contains forward-looking statements, which may be identified by their use of words like plans,expects, will, anticipates, believes, intends, projects, estimates or other words of similar meaning. Allstatements that address expectations or projections about the future, including but not limited to statements aboutthe Companys strategy for growth, product development, market position, expenditures, and financial results, areforward-looking statements. Forward-looking statements are based on certain assumptions and expectations offuture events. The Company cannot guarantee that these assumptions and expectations are accurate or will berealised.The Companys actual results, performance or achievements could thus differ materially from those projected inany such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or reviseany forward looking statements, on the basis of any subsequent developments, information or events.PantaloonRetail(India)Limited-ANNUALREPORT2009-2010It is obvious that modern retail is one of the largestbeneficiaries of India’s economic growth. At PantaloonRetail, what is more satisfying is that being in thisbusiness allows us to benefit the maximum numberof stakeholders and play a direct role in India’s economicdevelopment. Whether it is through bringing a smile tothe face of every Indian consumer, generatingemployment for thousands of young Indians, creatingnew markets for India’s entrepreneurs or empoweringcommunities, we fulfill our commitment to be apositive change agent in society and create value forevery stakeholder.In the process we develop new relationships with newcommunities and customers. We have now refreshed ourcommitments to every stakeholder to help build a strongerfoundation for our long-term, sustainable growth.
ENVIRONMENTWe continuously strive to reduceenvironment impact and optimizeenergy consumption of stores andhead offices, strengthen environmen-tal considerations in logistics opera-tions, promote environment friendlyproducts and raise awareness andinform on environmental issues bothinternally and externallySUPPLY & BUSINESS PARTNERS30,000 Enterprises & Entrepre-neurs, 80% Domestic SourcingWe promote local suppliers andproducts and develop long termrelationships with our suppliers in amanner that ensures sustainabilityand growth of every supply partnerCUSTOMERS & COMMUNITIES220 million footfallsWe help customers save more,guarantee up-to-date, wide choice ofproduct ranges for all segments andpurchasing powers and guaranteeproduct safety. We respect the socialand cultural diversity of India, providerelevant products for every community,help protect and celebrate localcustoms, festivals and art forms and bea positive agent of change in societyEMPLOYEES33,500 Directly Employed,over 150,000 Indirectly EmployedWe ensure safety and quality ofworking sites like stores and ware-houses, guarantee fair wages andpromote diversity and equal opportu-nities in a manner that it closelyreflects the composition of societyand the country. We provide continu-ous training to all employees toimprove their knowledge and skillbase for professional growth in theircareer pathINVESTORS30,000 ShareholdersWe strive to deliver superior, sustain-able financial performance andensure clarity and reliability offinancial information shared. Thecompany in FY 2009-10 announceda record dividend of 40% for Equityshareholders and of 45% for ClassB shares (Series 1) holders subjectto necessary approvalsrefresh commitments to stakeholdersGOVERNMENTRs 873 crore total contributionthrough direct and indirect taxesWe abide by all civic, state and centrallaws and statutes in letter and spirit,ensure full compliance with all directand indirect tax collection and be aresponsible corporate citizen
ANNUAL REPORT 2009 - 2010 3There is never an end to innovation. Never an idea that can’tbe improved. And never an achievement that can’t be bettered.Every single year, every effort on our part, has been to try andimprove on what we have.So we have been reconsidering our approaches. We have beenrethinking strategies. We have been realigning our businesses.All, to refresh ourselves and create a Retail Pure-Play.Refresh operations. Refresh customer experiences. Refreshthoughts. Refresh commitments. Refresh talent. Make thebest of a refreshed economy that India stands on thethreshold of.In every business that we are in, in every engagement we haveentered into, in every relationship, the one word that deﬁnesthe year is ‘Refresh’.re44 Directors’ Report52 Corporate Governance Report62 Ratios64 10-year Financial Summary68 Auditors’ Report72 Balance Sheet73 Proﬁt and Loss Account74 Schedules94 Abstract95 Cash Flow97 Section 212 Statement99 Auditors’ Report on ConsolidatedAccounts100 Consolidated Accountscontents05 Our Retail Network07 Message from TheManaging Director09 Corporate Highlights10 Business Review40 Management Discussionand Analysis
PANTALOON RETAIL (INDIA) LIMITED4aggacodajadhpathviaggacodajadhpathviaggacodajadhpathviaggacodajadhpathviaggacodaviagCHIEF FINANCIAL OFFICERC.P. TOSHNIWALCOMPANY SECRETARYDEEPAK TANNASTATUTORY AUDITORSNGS & CO.RISK ADVISORSERNST & YOUNG PVT. LTDBANKERSBANK OF INDIAAXIS BANK LTD.ANDHRA BANKCORPORATION BANKHDFC BANK LTD.IDBI BANK LTD.STATE BANK OF TRAVANCOREUCO BANKSTANDARD CHARTERED BANKTHE FEDERAL BANK LTD.UNION BANK OF INDIASHARE TRANSFER AGENTSLINK INTIME INDIA PVT. LTD.C-13, Pannalal Silk Mills Compound,LBS Marg, Bhandup (West),Mumbai 400 078.Tel . No. + 91 22 2596 3838Fax No. + 91 22 2594 6969REGISTERED OFFICE & CORPORATE OFFICEKnowledge House, Shyam Nagar,Off Jogeshwari-Vikhroli Link Road,Jogeshwari (East), Mumbai – 400 060.Tel. No. : + 91 22 3084 1300Fax No. : + 91 22 6644 2201WEBSITEwww.pantaloonretail.inBOARD OF DIRECTORSSHAILESH HARIBHAKTIChairman & Non-Executive Independent DirectorKISHORE BIYANIManaging DirectorS DORESWAMYNon-Executive Independent DirectorDr. DARLIE KOSHYNon-Executive Independent DirectorANIL HARISHNon-Executive Independent DirectorBALA DESHPANDENon-Executive Independent DirectorV. K. CHOPRANon-Executive Independent DirectorGOPIKISHAN BIYANINon-Executive Director DirectorRAKESH BIYANIExecutive Director DDirectorVIJAY BIYANIExecutive DirectorKAILASH BHATIAExecutive Director(Appointed w.e.f. 01-04-2010)
ANNUAL REPORT 2009 - 2010 7Dear Stakeholders,We are pleased to share the Annual Report of yourcompanyfortheﬁnancialyear2009-2010.Wehadstartedthe year on a note of ‘cautious optimism.’ From wherewe were in June 2009, we believed that from then on,the economic environment could only get better andit was upon us to refresh ourselves in a manner thatallows us to be the largest beneﬁciary of the turnaround.We refreshed our thoughts, ideas and perspectives onthe business in a manner that improves productivity andefﬁciency. Simultaneously, based upon your feedback,we realigned our business in a manner that makes yourcompany a retail pure-play.During the year, your company unlocked value anddivested its stake in subsidiaries engaged in branddevelopment, knowledge and IT services and educationand training. It also demerged its property managementand food services business.The value retail segment ofthe business, which includes Big Bazaar, Food Bazaar,KB’s Fairprice, among others, have grown in size andscale. We believe that this business now requiresa more focused approach and so we have created awholly-owned subsidiary, Future Value Retail Limited,to follow a refreshed growth trajectory. We have alsodemerged the home business and merged it with thefrom the managing director“Modern retail will drive new demand, drive consumption innew categories and as retailers, we will have to play a major roleand create demand for many new products.”parent company. In January, the business opened itslargest store in the Mumbai suburb of Vikhroli, takingthe total number of HomeTowns to 10.With so much ofresidential development happening across the country,this business is set to grow fast.We have now set a new course for ourselves in thisjourney in our retail business through four principalcategories of food, fashion, general merchandise andhome. Home includes electronics, furniture and homeimprovement.These categories account for nearly 65%of the consumption in the country and represent themass aspirational consumer.We decided to move out ofall other categories and concentrate only on these fourcategories.Modem retail stands on two pillars; one is scale, whichwe believe we are more or less achieving in the fourkey categories and in our geographical presence. Theother pillar is the efﬁciencies, which is a function of howwe handle this scale and supply chain. These are thetwo key differentiators which will separate one retailerfrom another. We have been front-runners in both theseaspects.Signiﬁcant amount of work has happened on the supplychain, logistics and distribution side, wherein, withefﬁciencies that have been achieved; your company hascreated a sizeable infrastructure ensuring that the costof delivery is probably the lowest in the country. Theimpact of these steps is evident in the ﬁnancial numbersyour company achieved during the ﬁnancial year. Webelieve that your company will have a true differentiationcompared to any other entering this business.But that is not all. During the year, around 220 millioncustomers walked in our stores and chose from over3.5 million SKUs (stock keeping units) available acrossour various formats. These have been sourced fromcompanies almost entirely based in India. In addition,we tapped into a large number of service providers to
PANTALOON RETAIL (INDIA) LIMITED8Leading retailers’ turnover as % of countries’ GDPSource: IMF Economic Intelligence Unit, Thomson AnalyticsNote: Analysis base on USD/INR exchange rate of 44.80: Retailers’ sales calendarised to December year end.deliver these products. Put together there are more than30,000 small, medium and large enterprises from whomwe source our supplies. In each of these cases, ourgrowing business created fresh employment, boostedincome generation and impacted livelihoods. Further towhat we had shared in last year’s annual report, thesepractices are in line with our broad objective of being acatalyst in India’s consumption-led growth, and being apositive agent of change in societies and communitieswe operate in.We believe that the Indian consumption story isintact, and as more and more consumers get into theconsumption mode, modern retail will be its biggestbeneﬁciary. Modern retail will drive new demand, driveconsumption in new categories and as retailers, wewill have to play a major role and create demand formany new products.There is a complete strategy beingworked upon, on our understanding of the consumersand what products they would want to buy next, andthose products have to be made available. At the sametime, we ﬁrmly believe that our core responsibility liesin providing shelter to customers from the overall rateof inﬂation. While our scale and size of operations ishelping us improve efﬁciencies, it is also helping us givemore value to our customers.In a year that was marked by extraordinarily high rateof food inﬂation, I am happy to share that the world’sleading market research company, in a report, validatedthe fact that our customers saved far more than othersshopping from traditional and other modern retailers.We are also working on a number of initiatives that willhelp us understand Indian consumers in a fresh newmanner. The objective is to understand the customer inthe context of the community, and not as an individual.And in the process, we are building, nurturing andsupporting the community and thereby owning it. Weare helping people protect and celebrate local customs,festivals and cultures. Just to cite some examples, ourwork around the Anna-Santharpane Seva has helpedearned huge goodwill from the community in Mysore,and is being rolled out across stores in South India.Elsewhere, in Bengal, we are employing local folkmusicians and artisans, called Baul singers, who travelon the suburban train and transport network dispersingmessages on promotions at Big Bazaar. Such innovativeand unique Indian ways of working, is helping us gain‘heartshare’ of our customers.We believe that each of these factors will help uscreate a far more economically and socially sustainable0.9%0.7%0.1%1.7%1.8%2.1%2.3%3.0%Penetration of Modern Retail1.1%Retailers’DomesticTurnoveras%ofcountries’GDP2009GlobalAverage1.7%Low~1.7%INDIA RUSSIA TURKEY GERMANY NETHERLANDS USA FRANCE MEXICO UKHigh
ANNUAL REPORT 2009 - 2010 9“We are in line with our broadobjective of being a catalystin India’s consumption-ledgrowth and being a positiveagent of change in societies andcommunities we operate in.”57%CAGR Growth in EBIDTAfor 4 YearsCREATION OF RETAIL PURE PLAYTHROUGH DIVESTMENT AND DEMERGEROF NON-RETAIL BUSINESSESIncorporation of Future Value Retail Limited asa wholly-owned subsidiary for spearheadingvalue businessMerger of the home business with theparent companyFocused approach towards growing fourkey categories – fashion, food, generalmerchandise and homeRamping up of the farm fresh business in aproﬁtable mannerAcquisition of South African retailer Shoprite’sIndia businessLaunch of Sach toothpaste, co-createdwith SachinTendulkar, ethnic food brand,Ektaa and strengthening of FMCG privatebrands portfoliobusiness that takes into account the Indian context andbuilds upon the Indian way of life. I believe, that wehave been able to create a value-based, people-drivenculture within the organisation that adapts to bothchange and tradition in a unique manner. This helps uscreate a far more sustainable business that beneﬁtsour stakeholders, including our supply and businesspartners, environment and communities, investors andgovernment, customers and employees. With regardsto our operational growth, we believe that growth hasto be steady and calibrated, and we will grow by 2.5million to 3.5 million square feet of space for the nextthree years.This will obviously depend on the external environmentas well, and there is sufﬁcient reason to believe thatthe Indian economy will continue to go through arapid transformation. During the decade, private ﬁnalconsumption expenditure is expected to cross a trilliondollars sooner, than later.Your company’s share of India’sGDP is now just above 0.1%. But if we look globally,leading retailers, Tesco, Wal-Mart and Carrefour in UK,USA and France respectively, have around 2% shareof their country’s GDP. The global average is around1.7% and that implies we have a long way to go. Fewwill disagree that the potential for modern retail is largeand across mature economies, these leading retailersare among the top three companies by turnover,employment and value creation. As the Indian economymatures, it is upon us whether we can make the samehappen in our country as well.We will continue to put inour best efforts into it but we will need your continuedtrust, conﬁdence and belief in us to help us reach ourpromised land.Rewrite Rules, Retain ValuesKishore Biyanihighlights2009-10
PANTALOON RETAIL (INDIA) LIMITED102009-10STRONG SAME STORE SALES GROWTH, COUPLEDWITH INCREASED OPERATIONAL EFFICIENCYPROVIDED A FRESH IMPETUSTOTHE BUSINESS.During the year, with a limited amount of capitalemployed into the retail business, the companymanaged a signiﬁcant increase in the overallturnover. An incremental turnover of nearly` 2,500 Crores was achieved on a limited capitalemployed of ` 620 Crores, translating into anincremental capital employed ratio of close to4% or a three-fold increase in the overall balancesheet efﬁciencies correlated to top-line.CONSOLIDATEDTURNOVER.CONSOLIDATED EBIDTA.EARNINGS PER SHARE.SAME STORE SALES GROWTH9787 cr. UP 28%952 cr. UP 56%3.18 UP 468 %2010 2009 2008VALUE9.5% 7.4% 10%LIFESTYLE14% 6% 10%HOME12% -11% 38%FOOTFALLS (millions)EPS (`)PAT (` Cr.)EBIDTA (` Cr.)NET SALES (` Cr.)
ANNUAL REPORT 2009 - 2010 11space evolutionOperational store space increased to13.25 million square feet, which includesaround 2 million square feet added aftermerger of home business.Retail space in million square feetRetail space in million square feet** Denotes only stand alone Food Bazaar
ANNUAL REPORT 2009 - 2010 13A refreshed look at changingconsumer habits helped us focuson ‘fresh’ as a key area.This ledto innovations on how we source,stock and deliver fresh food.Simultaneously, an innovative autoreplenishment system improvedour ability to deliver exactly whatthe customer wanted.A refreshed approach led to ourFMCG private brands growing by75% over last year and enjoyingbetween 8% – 35% share in theirrespective categories.Our greatest joy is that we helpedcustomers save more, comparedto any other retailer.ethnicfood
PANTALOON RETAIL (INDIA) LIMITED14If Indians are buying larger and more advanced refrig-erators, experimenting with new cuisines and stirring upnew recipes for every meal, retailers have to step up andexceed customer expectations. Changing consumerhabits, growing concerns about freshness and hygiene,and increased demand for processed, semi-processed,experimental cuisines has opened avenues for retailersto participate in the kitchen.Keeping these trends in mind, the company has beenexperimenting with product, service and design innova-tions and bringing in fresh thoughts, offerings and valuecreation in the food business. We are experimentingwith various assortments and designs at a number ofFood Bazaar and Big Bazaar outlets. While in GourmetFood Bazaar in Delhi and a newly opened Big Bazaarin Chennai is offering a larger assortment of importedchoices for a more evolved customer, at Big BazaarFamily Centres in Malleswaram, Bangalore and Sealdah,Kolkata, we are experimenting with larger ethnic andlocal brands and food options. Simultaneously, at therecently acquired FoodRight store in Mulund, we are of-fering a larger choice in fresh fruits and vegetables, bak-ery and home-made replacement categories.These areproviding us an interesting learning ground to developthe next generation of Food Bazaar stores.Farm fresh is now a key focus area for the company.Customers buy fresh once or twice a week and an em-phasis on the fresh category means more frequent vis-its by customers and higher share of the top-up part ofpurchase. Moreover, there is now an increasing thruston relatively value-added pre-cut or ready-to-use vegeta-bles because the company believes that the customeris increasingly willing to outsource the ‘negative ‘ laborof kitchen to a retailer. The stores are also delivering afar larger choice in fruits, including imported and exoticvarieties. Fruits are an indulging product and it has to besold the way chocolates and snacks ﬂavouring is sold toIndians.The company has put together a senior team ofprofessionals, from both domestic and global markets,with cross-functional experience at various stages ofthe food value-chain and sourcing.With 185 Food Bazaar stores, 123 KB’s Fairpricestores and a FoodRight store in Mumbai, the compa-ny’s reach and scale is now unparalleled in the market.Our food business now captures around one-third of2626 new Food Bazaar stores3333 new KB’s Fairprice stores75%75% growth in sale of FMCG private brands
ANNUAL REPORT 2009 - 2010 15While we experiment with our food offerings, we ﬁrmlybelieve that our core responsibility lies in providingshelter to customers from the overall rate of inﬂation.While our scale and size of operations is helping usimprove efﬁciencies, it is also helping us give morevalue to our customers.This was validated this year byUS-based market research agency Nielsen. Its reportstated that compared to the previous quarter, in theJanuary-March quarter, Food Bazaar on an average,helped save customers 5.8% more, compared toaround 1% in the general trade while customersshopping at the rest of modern trade paid 1% more.foodrefreshmarket share in modern food retailing. We are lever-aging this strength to build new brands that can helpcreate more value for the consumers. During the year,sales of private brands in the FMCG segment grew by75% over last year.The private brand portfolio was ex-panded to cover an entire spectrum of commoditiesunder Premium Harvest, Golden Harvest and valueadded foods like Tasty Treat breakfast cereals, soupsand cookies. The Home and Personal Care portfolioof Clean Mate and Care Mate saw robust growth inmany categories. We also launched the brand ‘Sach’in oral care, co-created with cricket legend SachinTen-dulkar.A major initiative towards the strengthening of theprivate brands portfolio was the launch of ‘Ektaa’,offering community-speciﬁc food products across thecountry. The ﬁrst product launched under this brandwas popular variants of rice from different statesof India. Eventually the brand is expected to launchproducts like wheat, regional spices, pickles, papadsetc in phases, giving customers a large basket ofcommunity foods to choose from. Private brands arenow present in 58 categories with over 300 SKUs andthese enjoy between 8% and 35% share of sales intheir respective categories.Private brands are now presentin 58 categories with over 300SKUs and these enjoy between8% and 35% share of sales intheir respective categories.
ANNUAL REPORT 2009 - 2010 17A democratized approach to fashion in design and pricing,contributed to a strong performance in the category. Arefreshed sourcing and inventory management systemhelped optimise merchandising efﬁciencies.A refreshed look at trends and a constant tactical effortto create excitement – through events, promotionsand campaigns - saw 2 million pieces being picked atcompany outlets every week, led to Green Card (our loyaltyprogramme) serving 1.8 million customers and led to ourprivate brands cornering more than 70% share.
PANTALOON RETAIL (INDIA) LIMITED18As leaders in the fashion business, the company suc-cessfully delivered on its promise to democratize fash-ion both in the value and lifestyle segments. A refreshedapproach towards the way the company priced its prod-ucts and the way it designed its products was appreci-ated by customers. The share of merchandise sold dur-ing the non-sale periods at full price, or the sale-throughrates, increased dramatically from 74% to 86% duringthe year. Such heartening numbers were due to the im-plementation of the automatic replenishment systemsacross the supply chain that helped improve productavailability.The year saw a 22% growth in the value fashion seg-ment. Fashion@Big Bazaar continued to be the preferredshopping destination for the masses with core fashionunits contributing close to 30% of Big Bazaar sales. La-dies ethnic wear, a segment that was hardly existent inmodern retail and was expected to be sold only througha few niche stores, till a few years back, has become astrong category within the company’s fashion formatsand has grown by more than 100%. During the year, thecompany’s strong private brand portfolio continued tooffer contemporary designs at better prices and createexcitement among customers. Private brands now con-tribute over 70% in the fashion business.The company’s ﬂagship fashion format, Pantaloons, con-tinued its journey to be the leader in fashion, excitingcustomers with a range of colours and style throughconstant innovation and improvement in design. Ladiesethnic wear, western wear and kids wear are promisingsegments with immense growth potential and the em-phasis is to build products and brands around them.Thecompany aims to have 60 stores by the end of the year,from 48 at present.The Green Card loyalty program hasgrown to 1.8 million members which now contributesover 55% of store sales.The other major format in the lifestyle segment, Cen-tral opened 3 stores in the cities of Mumbai, Bangaloreand Ahmedabad and expanded its retail footprint to 12stores occupying over 1.6 million square feet.Staying true to its buzzing nature, Central offered anaction packed year to consumers offering new promo-tions almost every month.The Ramp Fashion campaignin November strengthened Central’s position as a brandthat offers the latest in fashion. With the Party Startercampaign in December that set the mood for the sea-son for shoppers, Central continued to deliver excite-ment on the shop ﬂoor for customers. The Happiness86%Share of merchandise sold duringnon-sale periods22%Growth in the value fashion segments30%Fashion@Big Bazaar’s contribution toBig Bazaar sales
ANNUAL REPORT 2009 - 2010 19Sale campaign reafﬁrmed the belief shoppers had in thebrand, of offering the best discounts in the city, on thebest brands. The Tropical Trends campaign in April high-lighted the best fashion for the summer season. TheYouthopia campaign in June connected with the youthin the city and gave them a platform to showcase theirtalent at Central. With city speciﬁc initiatives like Ram-adan celebrations in Hyderabad, Navratri celebrationsin Vadodara, Central connected emotionally with theconsumers of the city by celebrating their festivals withthem. In non-metro markets, Central offered a shoppingcarnival experience with food festivals, sweepstakes, in-store events and a whole lot more.The wedding wardrobes campaign in association withVan Heusen made Central a destination for weddingwardrobes for men. Central also ensured that the offer-ing of e-Zone, Food Bazaar and Home Town was wellintegrated in the stores in order to gain a larger walletshare of the consumers. For all the promotions, Centralvisual merchandising brought alive the category, the fes-tivities and the experience for shoppers at the store.The360 degree marketing campaign ensured consumerswere made aware of the happenings at Central at everyconsumer touch point.The company expects to open 6 Centrals in the nextyear with plans to launch a third Central in Bangalore,as well as, enter new markets like Thane, Raipur, Surat,Visakhapatnam and Jaipur.Brand Factory, the company’s large format fashion chainoffering brands at smart prices, opened 5 new storesduring the year. It entered the eastern market witha new store in Kolkata. In ﬁscal 2011, it plans to openanother 6-7 stores in cities like Bangalore, Hyderabad,Pune, Kolkata.Planet Sports, the company’s specialty format for sportswear and equipment, focused on being the favoureddestination for India’s sport enthusiasts. Salomon, theworld’s leading brand in trail running and adventuresports was added to the existing portfolio of exclusivebrand licenses. The company has exclusive brand li-censes of Callaway, Prince, Wilson, Spalding, Speedo,among others.During the year, the company also formed a joint venturewith the leading British brand, Clarks.fashion
ANNUAL REPORT 2009 - 2010 21A revival in the demand for new homes saw usrefresh HomeTown and what HomeTown hadto offer. A service that is critically relevant to theIndian market was introduced – Design and Build.This involved a complete solution for those buildingnew homes, renovating or just refurnishing.Theavailability of this low-cost, turnkey solution for allthe customer’s needs made HomeTown the one-stop shop for all home requirements.We also refreshed our network by settingfoundations to launch satellite stores in emergingareas that could feed the hub stores. Partnershipswith key developers to offer fully-furnished homeswas another key initiative that is being rolled out.
PANTALOON RETAIL (INDIA) LIMITED22A unique offering criticalto Indian consumers is theDesign and Build Service, thathas now been extended to allHomeTown stores.1010 large HomeTown stores at theend of 20101mnOver 1 million square feet of retail space
ANNUAL REPORT 2009 - 2010 23The year 2009-2010 saw the gradual revival in demand fornew homes and with it HomeTown refreshed itself withnew stores, new services, new brands and new productcategories. A unique offering critical to Indian consum-ers is the Design and Build Service, that has now beenextended to all HomeTown stores.The service providesan individual relationship manager to the customer, abudgeting and home design team and a quality assur-ance team working with dedicated contractors for both,complete home interiors, as well as, for part renovationsand installations. Thus the store becomes a one-stopshop for all home furnishings and home improvementproducts. It also provides low cost, turnkey solutions tohomeowners allowing customers to save both, time andmoney.With 10 large HomeTown stores covering over 1 millionsquare feet at the end of June 2010, the company plansto open many smaller satellite stores in new upcomingareas - the suburbs of big cities like Mumbai, New Delhiand Kolkata. As a result, while the large-format storeswould serve as central showcase hubs, the smaller satel-lite stores in new urban developments would work withselected builders and have a presence in their marketingsuites and showhomes, giving homeowners ideas andsolutions to completing their homes.The company has also inked partnerships with key de-velopers across the country to offer fully furnished apart-ments as complete packages and ready-made homes toconsumers. The company expects its institutional busi-ness, as well as, counters and temporary satellite storeslocated within upcoming housing complexes, to providea signiﬁcant boost to its business.Home Town, by directly sourcing from local and globalmarkets, continues to build its own brands that providemore value to customers at the lower end of the mar-ket. At the same time, it has successfully introducedselected international brands like American Standardand Moen over the past year. Going forward, HomeTown intends to become an exclusive Indian partner ofsimilar global brands. These strategies have enhancedthe width of product offering within the stores and hasuniquely positioned HomeTown as a one-stop shop withthe widest range of value and branded lines.homerefresh
ANNUAL REPORT 2009 - 2010 25ANNUAL REOur attempt to change how theIndian consumer approacheselectronics is reﬂected in theSee,Touch, Feel environmentsthat result in better engagementwith the customer. A connectedenvironment also holds greaterpossibilities in the upgrade market.We are also setting up a servicevertical that will address a criticalneed-gap in the market. Anotherachievement was the successof our private brands Koryo andSensei, with 125 products in45 categories.
PANTALOON RETAIL (INDIA) LIMITED26The company’s lifestyleelectronics retailing format,eZone is continuously refreshingitself with new ideas, new valuepropositions and a new range ofthe latest consumer durables.3636 eZone stores across the country.125125 products offered through private brands.20%Around 20% of sales through Koryo & Sensei.
ANNUAL REPORT 2009 - 2010 27While CRT and ﬂat panel screens are being replacedby LCD televisions in some homes, LCD televisionsare being replaced by LED, plasma and now 3D televi-sions in other homes. Airconditioners, and more oftenthe split variety are entering new homes. Smart phones,netbooks, automatic washing machines are changinglifestyles across households in India. Rapid changes intechnology coupled with higher aspirations are drivingtremendous growth in the consumer electronics retail-ing sector in India. At the same time, the segment isemerging in a very competitive retail environment.The company’s lifestyle electronics retailing format,eZone is continuously refreshing itself with new ideas,new value propositions and a new range of the latestconsumer durables. From introducing for the ﬁrst timein India, a 48 hour non-stop shopping extravaganza, todeveloping new store designs to create a See, Touchand Feel environment, from engaging customers withlive demonstrations of products to personalized atten-tion to customers, eZone is gearing up to strengthen itsmarket leadership in the segment. The format will alsobe introducing a new after-sales service vertical in orderto ﬁll a critical need-gap in the market and differentiate itfrom competitors.During the year, the business deployed signiﬁcantresources in recruitment, training, process and supplychain management.The business also has two success-ful private brands - Koryo and Sensei that now offer over125 products in 45 merchandise categories. The objec-tive of creating these private brands is to fulﬁll need gapsin products which may not be served through currentnational and international brands and to create volumedrivers in various segments.electronicsrefresh
ANNUAL REPORT 2009 - 2010 29The logistics network was refreshed with therationalisation of distribution centres and an increasedusage of technology and processes to drive efﬁciency.Thereinforcement of systems like the Warehouse ManagementSystem, Put-to-light and the Auto Replenishment Systemsaw availability at storesgo up to 90%.Our 1600-strong ﬂeet, with 12 transportation hubs and 40branches nation-wide, has helped us build a superior andefﬁcient network.
PANTALOON RETAIL (INDIA) LIMITED30Hong Kong based Li & Fung Group, theworld’s leading sourcing and logisticsservice provider is an investor and partnerin this business.90%Avilability of key SKUs at every store.3.5 mnAround 3.5 mn of operationalwarehouse space.1600Fleet strength of 1600 transport vehicles.
ANNUAL REPORT 2009 - 2010 31The year saw a dramatic overhaul of our logistics andwarehousing network focused on delivering every prod-uct to every customer and achieving this with maximumefﬁciency. The refreshed logistics network was builtupon rationalisation of distribution centers and increasedusage of technology and processes to drive efﬁciency.Optimization in distribution centers were complementedby implementation of Warehouse Management System(WMS) for fashion and general merchandise and com-missioning of India’s ﬁrst Put-to-Light (PTL) system atthe Kalyan hub. These steps, along with the executionof Auto Replenishment Systems (ARS), has helped ﬁllrates - or availability of every single SKU at every store- from 70% levels to over 90%. The company believesthat there is scope to improve these further; thereby in-creasing potential sales from customers every time theyvisit our stores.The supply chain operations are handled by a specializedsubsidiary of the company, Future Supply Chain Solu-tions Ltd (FSCSL). FSCSL’s consolidation of warehousingspace has also been to derive maximum beneﬁt fromthe up-coming GST regime. The company’s transporta-tion network now operates on a robust hub-and spokedesign, structured with 12 transportation hubs and 40branches across the country, with a ﬂeet strength of1600 vehicles.India’s FMCG distribution trade is highly fragmented,making it a huge challenge for mid-sized brands to getdistribution reach across modern retail. Brands needto have multiple distributors across multiple locationsmaking the process time and cost ineffective. To bridgethis gap, FSCS has started Brand Distribution Services(BDS), leveraging on its existing capability of providingsupply chain services to the extensive network of thecompany’s stores.To meet challenging needs of the fast growing retailbusiness, in the next year, FSCS will complete WMSimplementation for other business such as food, furni-ture and electronics, bring in Put-to-Light system at 3additional Fashion and General Merchandise DC’s, ﬁt itsﬂeet vehicles with GPS/VTS systems and create a largeintegrated Food DC for storage, processing and distribu-tion of staples, FMCG products along with fresh fruitsand vegetables.logisticsrefresh
ANNUAL REPORT 2009 - 2010 33The company constantly launches and refreshes initiatives thatcontribute to happier, more productive talent.The Happyness IndexProgram is based on the belief that a happier employee has a greaterdrive to perform and adapt to meet changing needs.We launched and continued training programmes like Karta developmentprogramme, Vidyaarambh, Suprabhat, LEAP and PRISM.The company believes that the Seekho and Shishya programmes,whereby we encourage and ﬁnancially support employees to pursuehigher studies, is one of our greatest strengths and we will constantlystrive to bring in similar fresh ideas and perspectives into the business.
PANTALOON RETAIL (INDIA) LIMITED34The ‘Happyness Index Program’is a priority initiative aimedtowards building a culture ofachieving happiness throughsensitivity and empowermentprograms at the store.33,500Over 33,500 people directly employed bythe company.56Kartas or store managers identiﬁed fromwithin the organisation
ANNUAL REPORT 2009 - 2010 35The company has always believed that its biggest assethas been the 33,500 people employed in its retail busi-ness who come from a large cross-section of social andeconomic backgrounds. To help each of them achievetheir true potential, the company adopted a fresh ap-proach by recasting the human resources function intothe People Ofﬁce. The themes set for the year were -simplicity, happiness and disproportionate growth thatleads to building a performance-driven culture. A per-formance-driven culture demands higher efﬁciency andproductivity and the key to achieving higher productivityis attraction, development and nurturing of high caliberindividual. With this objective in mind the People Ofﬁceundertook a number of innovative initiatives.Among the most signiﬁcant initiatives was the launchof the ‘Happyness Index’. The program is based onthe belief that if employees are happy, there will begreater acceptance of the changing needs of the busi-ness and they will demonstrate greater trust andwillingness to align themselves with the company’svision, mission and values. When the beliefs arealigned; the right behavior that positively impacts cus-tomers manifest and as a result create more happycustomers, translating into better value creation forstakeholders. Happy people are more receptive andpeoplerefreshproductive. Happy people alone can drive productiv-ity and achieve disproportionate growth. Every humanbeing desires and deserves happiness in life. The ‘Hap-pyness Index Program’ is a priority initiative aimedtowards building a culture of achieving happinessthrough sensitivity and empowerment programs at thestore.The company also initiated a number of training anddevelopment programs, some of which included, Kartaor Store Manager development program to identify newstore managers from within the organization, Vidyaara-mbh, a festival of learning at our stores, Suprabhat, atwo-day residential program for senior and middle levelexecutives, Leadership Excellence Advancement Pro-gramme or LEAP for area managers, PRISM, a talentpipeline identiﬁcation program and Genesis for manage-ment trainees.In addition, the company continues to support theSeekho and Shishya programs that encourage andﬁnancially support employees to pursue undergraduate,graduate and post-graduate programs in business andretail management. The training initiatives collectivelyimpacted four out of every ﬁve employees in the organi-zation, thereby bringing in fresh energy and perspectivewithin the business.
ANNUAL REPORT 2009 - 2010 37We refreshed the very way we look at the customerthrough a new customer insight framework and theOne Customer Initiative.Our refreshed approach believes that proper leveraging ofcustomer insights can result in a customer from one formatbecoming a customer of the entire chain of formats.Towardsthis, the company is investing in developing new techniquesand programmes to better understand consumers and theirbehaviour.Having been at the forefront of building upon insights thatdrive the Indian customers’ spending patterns, we intendto become the company that understands and addressesIndian needs best.refreshcustomerconnect
PANTALOON RETAIL (INDIA) LIMITED38During the year, the customer footfalls improved by over20% to 220 million, despite a relatively fewer number ofnew store openings.This was due to innovative and freshmarketing and communication campaigns launchedduring the year. The company works with some of themost reputed advertising agencies in the country andhas well-respected professionals who aid and advisethe marketing teams working at its ofﬁces and stores ateach of the formats.However, during the year, the company no longer re-stricted it to format-speciﬁc communication and cus-tomer initiatives. The company leveraged its insights toown the customer in such a way that a consumer ofone format also becomes a customer of other formatswithin the retail chain.The company calls this ‘One Cus-tomer’ initiative.What has always differentiated the company has beenits unique approch towards consumer trends. Customerconnect is now being looked through a twin strategy -customer insights framework and the One Customerinitiative. On the insights framework the company is de-veloping deeper insights and learnings about customerbehaviors, keeping in mind the rich diversity of the coun-try. India has very strong ethnic, linguistic communitiesand the customer insights team is making deep divesinto some of the biggest community groups. For ex-ample, a key outcome of ongoing studies and insightswas the bouquet of new initiatives under the banner of“Maharashtra Majha”. It involved going deeper into thelifestyle, the cuisine, the culture of people in Maharash-tra across different regions and extending that to theirfood habits. Food is the one category that stays themost connected within communities and therefore, be-ing able to create both processes and ingredient-basedofferings that are relevant to the different sections ofthe community, will yield signiﬁcant loyalty and beneﬁtsacross the retail chains.Another area of study is migration. Nearly 30% of Indiansare in fact migrants, that is to say they have moved awayfrom their ancestral locations to their current locations,and in the case of the large cities, that number is prob-ably even larger. Understanding the spending patternsand developing insights on urban migrants can providea large opportunity for the home business to leverageupon. At the same time, one thing that they are mostreluctant to change are their food and cultural codes andthis can be used to earn their loyalty by offering ethnicfood and festival items of each community across the220 mn220 million customer footfallsduring the year.45%Around 45% rate of customer conversion.
ANNUAL REPORT 2009 - 2010 39country.The third lens is gathering a deeper understand-ing of the family unit structure and how decisions getmade in different kinds of family units is important, es-pecially in the consumer durables business. The fourtharea being studied is urban profession-based communi-ties and self-employed consumer segments and eachof their consumption patterns. Collecting these lenseswill offer a fresh framework to work with a wide cross-section of customers.On the other hand, the One Customer initiative, is ex-pected to emerge as a big differentiator for the com-pany.The idea is to enable the tracking of the consumerthrough his or her lifetime and thereby unlocking the en-tire lifestyle value. Furthermore, we are investing in howwe can tag and track the customer across purchases intime within the formats, and also take a cross formatview of every customer. The company is developing aspecialized loyalty program which can also generate richanalytics and customer insights.Customer connect is now beinglooked through a twin strategy -customer insights framework andthe One Customer initiative.
PANTALOON RETAIL (INDIA) LIMITED40The purpose of this discussion is to provide anunderstanding of Pantaloon Retail (India) Limited’sﬁnancial results and business performance by focusingon changes in certain key measures from year to year.Management Discussion and Analysis (MD&A) isorganized in the following sections:• Introduction• Operational Overview• Competitive Landscape• Business Outlook• Internal Controls and their Adequacy• Review of Financial PerformanceIntroductionThe Indian economy has shown great resilience in theback drop of a continued year of global economiccrisis. With the Indian economy steadily recovering topre-2007 levels, economists are once again predictinggrowth of above 9% levels for the next decade. ThePFCE (Private Final Consumption Expenditure) isexpected to reach about $1 trillion by the end of thisdecade. Main economic drivers, like investments andinfrastructure, compliment the consumption growthstory and thus the two will propel each other’s growth.That brings in a huge amount of optimism andenthusiasm with regards to consumption and thusenhances the belief that India’s consumption growthstory is intact. The organization has taken varioussteps during the previous twelve months to secure,preserve and enhance its position such that it is thelargest beneﬁciary of India’s economic turnaround.To focus on its broad objective of being a catalyst ofIndia’s consumption led growth, the company hasaligned it business to create a retail pure-play. Theobjective has been to divest as far as possible all non-retail businesses and consolidate all retail businesses.As part of this realignment, the company divested itsinterests in subsidiaries involved in brand building,technology and knowledge services, training andmanpower development and mall management andproperty services. To consolidate its retail businesses,it merged the home solutions business of its subsidiary,Home Solutions Retail (India) Limited (HSRIL) withitself. Also, a wholly-owned subsidiary, Future ValueRetail Limited (FVRL) was created to operate its fastgrowing value retail business. These activities haveunlocked value for shareholders and been able toprovide higher stakeholder satisfaction along withbetter compliance and governance.Operational OverviewFrom a business perspective, the company has showna robust revenue and proﬁt growth. Pantaloon Retail(India) Limited reported a consolidated turnover of `9786.94 crore for the ﬁnancial year ended 2009.2010 representing a CAGR of 29.4% over the last 3years. The consolidated EBIDTA for FY 2009-10 is `952.24 crore, compared to ` 609 crore in FY 2008-09. The consolidated PAT for FY 2009-10 is ` 76.35crore, compared to a loss of ` 7.46 crore in FY 2008-09. Proﬁt after minority interest increased from` 10.07 Crores in FY 2008-09 to ` 67.49 Crores in FY2009-10, representing an increase of 570%Signiﬁcantly enough, we have achieved a signiﬁcantamount of increase in sales without commensuratespace expansion, indicating the effective results of theinitiatives undertaken over the last year. We addedapprox 1.6 million square feet of space at the PRILstandalone level and including around 2 million squarefeet of space of the home business, we reached 13.25million square feet at a consolidated level.During the year the company spent resources and timeon strengthening the supply chain network. Westrongly believe that a robust supply chain is the keyto sustainable scale and leadership. Efforts have beenmade in terms of IT integration, SKU rationalization,vendor management, warehouse optimization andtransportation network ensuring a seamless integrationbetween all partners in the value chain. As a result, wehave seen improvements in the ﬁll rates and turnoverrates at the store level, thereby improving margins andturns. The consequence of these efﬁciencies can beseen in the robust SSG’s the company has recorded inthe various categories.Simultaneously, the company worked on giving a freshnew look, feel and experience within its stores, acrossall its formats. Fresh merchandise and assortmentplanning, visual merchandising, and innovativeservices, complimented new and innovativecommunication, marketing and loyalty initiatives tobring in new customers and acquire a larger share ofspending from existing customers. New approaches tounderstanding customers, based on communityinsights, and translating them into customized andtargeting communication and advertising strategieshelped the company acquire a larger share of theirtrust and loyalty towards its formats.These were reﬂected in the Same Store Sales Growth(SSG) which showed healthy trends across thesegments of lifestyle (13.6%), value (9.5%) and home(12%). Home, in particular, showed great revival signsfrom negative growth last year, to signiﬁcant positivegrowth in 2009-2010. Going forward, we believe twothings will inﬂuence SSGs, (A) Our own initiativesaddressing efﬁciencies and merchandising (B) theconsumer led push given increasing disposable incomeand more afﬁnity towards the modern retail.Going forward, value will continue to hold a dominantshare in the sales mix which was 59% in 2009-2010,while Lifestyle and Home were 25% and 15%respectively. This sales mix trend is expected tocontinue.While focusing on its retail business, the company hasidentiﬁed four key categories that it will concentrateits efforts on. These four categories capture over 65%Management Discussion and Analysis
ANNUAL REPORT 2009 - 2010 41ANNUAL REPORT 2009 - 2010 41of the aspirational customers’ consumption basketand the company will extend its merchandise acrossboth value and lifestyle segment, thus capturing theconsumption spends of a very broad cross-section ofcustomers. The four key categories are food, fashion,home (which includes furniture and consumerelectronics) and general merchandise. The companyhas been working on an integrated food strategy tosecure a position as a leading food retailer. Accordingto leading market research agency, the company’sfood retailing formats has a market share of over 30%in modem retail in the top 10 cities. Being pioneers offashion in the modern retail sector, the company has astrong understanding of the needs of the consumersand the formats Pantaloons, Central, Brand Factoryand Fashion@Big Bazaar have registered strong growthin this category even during the downturn. GeneralMerchandise, which contributes to approximately10% of Big Bazaar’s business, has shown steadygrowth. Home is expected to be a business with highpotential and growth and thus the company opened 2large Home Town stores during the year. With therevival of the economy and consumer sentiment, thedemand for consumer durables, electronics and otherhigh ticket items has returned with our formats ofElectronics Bazaar, placed within Big Bazaar, ande-Zone, our lifestyle format, registering stronggrowth.Overall, there has been steady expansion with afocused approach giving more emphasis to customerevolution. The company continues to dominate themindshare of the Indian consumer as we see steadyacceptance of our formats as their choice formats forconsumption, reﬂected in the steady increase infootfalls to 220 million this year, from 185 million inthe previous year.CompetitionBeing one of the pioneers of the organized retail sector,the company has an established business model alongwith an unparalleled understanding of Indian consumersand their needs best. During the year, the governmenthas initiated some dialogue on the opening up of theretail sector to foreign direct investment (FDI) in acalibrated manner. This may result in some foreignplayers, along with new domestic players entering thesector in the near future. Some of the world’s leadingretailers are already present in the country eitherthrough joint ventures and franchisee agreements withlocal players or through cash-and-carry operations. Weview these developments as a positive opportunity asthe entry of new players would only expand themodern retail market which is currently merely 5%-7%penetrated.Modem retail stands on two pillars – scale andefﬁciencies. The company has acquired a reasonablescale, both in the categories it is present in as well asin its geographical presence. Signiﬁcant amount ofwork has happened during the year on the supplychain, logistics and distribution side, wherein, withefﬁciencies that have been achieved and the sizeableinfrastructure that is in place, ensures that the cost ofdelivery is probably the lowest in the country. On boththese key factors, the company has been able tocreate strong position and these will act as truedifferentiation compared to any other entering thisbusiness.Considering the huge potential of the business andlow penetration of modern retail, it’s still some timeaway for retailers in India to be impacted by competitionat the national level. Competitive pressures are so farrestricted to the local level and location speciﬁc level,rather than a national level. The company’s strategy ofempowering store managers or Kartas to take on theground decisions allows it to tackle such competitivescenarios in a far more efﬁcient, fast and effectivemanner.Business OutlookAs much as it was on refreshing its operations,customer experience and communication, the focusfor this year was also towards margin expansion whichhas been achieved due to the supply chain and ITefﬁciencies creeping into the system. EBITDAregistered a CAGR of ~61% from 2007 to 2010. Akey area to work on was how to convert maximumEBITDA to cash and thereby bringing in working capitalefﬁciencies. The company also ensured that optimallevel of capital is deployed into the business and it wasable to bring down leverage as is reﬂected in theinterest cost reducing as a percentage of sales. As aresult, there was a growth in EPS despite equitydilutions during the course of the year. EPS increasedfrom 7.9 to 8.5 in the current year.Balance Sheet productivity continues to be one of themain objectives. Through the fresh induction of equityduring the year, the balance sheet is fairly wellcapitalized. Also, from FY09 to FY10, with a limitedamount of capital employed into the core retail, wemanaged a signiﬁcant increase in the overall turnover.The company has managed an incremental turnoverof nearly ` 2,500 Crores on a limited capital employedof ` 620 Crores, translating into an incrementalcapital employed ratio of close to 4% or a three-foldincrease in the overall balance sheet efﬁcienciescorrelated to top-line. In other words, it managed aSales on Net Working Capital turn of close to 4. Thusthere has been speciﬁc attention paid towardsrationalization of inventory and making sure theseefﬁciencies contribute to increased sale throughputs.A lot of steps were taken towards addressingworking capital and better release of liquidity throughthose efﬁciencies is being noticed. Another focus hasbeen towards overall liability management and debtproﬁling. The debt maturity proﬁle has been enhancedto over 3.9 years as opposed to the previous sub 3levels. Capitalization and focus on efforts towardsdebt reduction has reduced gearing which has comedown to 1x levels.
PANTALOON RETAIL (INDIA) LIMITED42With the gradual revival of the economic environment,the company believes that going forward, growth willhave to be sustainable, steady and calibrated. Theforward plan is to add around 2.5 million to 3.5 millionsquare feet of space during the forthcoming year andwe expect to maintain this pace for the next two tothree years.Risks and ThreatsThe external environment and economy poses themain risk to the company in the form of anotherdownturn. Also, increasing inﬂation is considered athreat which would increase overall input cost, as wellas, conversion costs. Currently, with the turnaround inthe economy, rising interest and people cost poses abusiness risk and needs to be monitored. In suchsituations, the company would have to prepare itsexpansion plans considering the increase in variouscosts and lower conversions. Thus the deals wouldneed to be more strategic for further expansion, aswell as, maintaining the costs within the acceptablelevel for current operations. The increased turnoverwould enable the Company to meet the incrementalcosts without affecting its proﬁtability level. TheCompany would be required to achieve critical mass inits various activities to ascertain minimum level ofcosts and better realizations. Further the availability ofbetter products and services at its formats wouldensure increased consumption and better realizationper square foot.Set standards, policies and deﬁned responsibilities ateach level of management, ensure that the risk ofexecution and management is minimized. Thestandards and policies set are reviewed on a regularbasis and revised as per the requirements to furtherminimize the risk. Use of information technology forimplementation and execution of various functions,ensures that the risk of execution is minimized evenfurther.Internal Controls and their AdequacyThe Company continues the process of Enterprise RiskManagement, in order to identify new risks, as well as,deﬁne and establish the control processes to mitigatethem. The Internal Control Framework for ﬁnancialreporting, organisation structure, documentedauthorities & procedures and internal controls arebeing reviewed by internal audit team on a continuousbasis and any issues arising out of the said audit isaddressed appropriately.The Company is continuously upgrading its internalcontrol systems by measuring state of controls atvarious locations. Controls in SAP, an ERP systemhave been strengthened with the help of reviewsconducted by Ernst & Young.The Audit Committee comprising of independentdirectors is involved in regular reviewing of ﬁnancialand risk management policies, signiﬁcant auditﬁndings, the adequacy of internal controls andcompliance with the accounting standards.Review of Financial Performance of the Company for theperiod under reviewThe ﬁnancial performance of the Company for the periodunder review, was not comparable to the previous yearfor the following reasons.a. The Company has transferred its Value RetailBusiness w.e.f. 1 January 2010, to its whollyowned subsidiary company, Future Value RetailLimited. Thus the value retail business, which formsa major component of the previous year business, isforming part of the accounts only for ﬁrst sixmonths.b. The business undertakings of Home Solutions RetailIndia Limited, has been transferred and vested intothe Company with effect from 1 April 2009 as perthe scheme of arrangement approved by Hon’ableHigh Court of judicature of Bombay. The saidbusiness though part of the Company Accountswith effect from part of the previous year, do notform part of the previous year’s accounts.c. The business undertakings pertaining to the MallManagement, Project Management, Mall AssetManagement and Food Services were demergedand transferred to Future Mall Management Limitedand Future Merchandising Limited with effect from1 April 2010 as per the scheme of arrangementapproved by Hon’able High Court of judicature ofBombay. The said business were part of theCompany Accounts for part of the current yearonly.As the Value Retail Business has been transferred fromthe Company to its wholly owned subsidiary company,only and giving ﬁnancial performance ﬁgures withoutconsidering the business which has moved to the saidsubsidiary, would not give any proper analysis of theoverall performance of the Company, for giving theﬁnancial performance hereunder, we have consolidatedthe total retail business, i.e. the business of the Companyas well as that of the Value Retail business operated bythe subsidiary.SalesThe Company’s sales and other operating income hasincreased from ` 6341.70 Crores to ` 8926.08Crores, an increase of 40.75% over the previous year.The Company has also recorded same store growth of10.64% during the year.Proﬁt Before TaxProﬁt before tax of the Company for the year 2009-10stood at ` 301.24 Crores as compared to ` 216.23Crores in the previous year, an increase of 39.31%over the previous year.InterestInterest & Financial charges outﬂow has increased from` 318.22 Crores in 2008-09 to ` 391.28 Crores in 2009-
ANNUAL REPORT 2009 - 2010 4310. The increase in interest and ﬁnancial charges is onaccount of HSRIL Merger impact and additionalborrowing for funding the growth plans of theCompany.The interest & ﬁnancial charges cover during the yearunder review has marginaly increased to 2.31 times ascompared to 2.12 times in the preceding year.Weighted average cost of borrowing has marginallydecreased from 11.37% to 11.12% on account ofreduced cost of funds/ borrowings driven by marketconditions.Net ProﬁtNet proﬁt of the Company for the year under review stoodat ` 230.16 Crores as compared to ` 140.58 Crores inthe previous year, an increase of ` 89.58Crores and63.72% over the previous year.DividendThe Company has proposed a dividend of ` 0.80 (40%)per equity share. The dividend would be payable on allequity shares of the Company including Class B Shares,and on warrants if converted on or before the BookClosure date declared for dividend. Class B Shareswould be entitled to 5% additional dividend as per theterms of issue of Class B Shares (Series 1). Further,dividend is also payable @ 0.01% per CompulsorilyConvertible Preference Shares (CCPs).Loans and AdvancesLoans and advances stood at ` 1027.77 Crores in 2009-10, a decrease of ` 174.78 Crores over the previousﬁnancial year. The major component of loans andadvances represents advance lease deposits for the storespaid to lessors and advances given to suppliers.Capital employedThe capital employed in the business increased by` 598.49 Crores in 2009-10. This is reﬂected in theliabilities side of the balance sheet through an increasein borrowings by ` 64.80 Crores and an increase inshareholders funds by ` 533.69 Crores. Return on capitalemployed has increased from 14.73% to 16.69%.Surplus managementThe Company generated a cash proﬁt of ` 455.11Crores as compared to ` 328.88Crores in the last year,registering the growth of 38.38%. The balance amount,after cash outﬂow on account of proposed dividend, isploughed back into the business to fund the growth.The growth of the Company has partly been funded bythe cash generated from the business as well as fromadditional funds borrowed and equity funds infusedduring the year.Equity Share CapitalDuring the year, Company has allotted 1,58,22,200(One Crore Fifty Eight Lacs Twenty Two ThousandTwo Hundred) fully paid up Equity Shares of the facevalue of ` 2/- (Rupees Two only) each at a premiumof ` 314/- (Rupees three hundred fourteen only)under qualiﬁed institutional placement.The Company has further allotted 1,00,00,000Equity warrants to Promoters on a preferential basisat a price of ` 400/- after receipt of 25% of thewarrant price as application amount. The promoterscan be exercise option available on the said warrantsby making payment of balance 75% amount forconversion on equivalent number of equity shares atthe option of the holders within 18 months from thedate of allotment of the warrants.The resultant increase in “Equity” on account of allotmentof fresh equity shares during the year is ` 499.97Crores.Debt-equityDebt-equity ratio of the Company has marginallyimproved with the reduction in the cost of fundsborrowed for the expansion of the retail operations ofthe Company. Debt-equity ratio for the year was1.04.Earning Per Share (EPS)The Company’s Basic Earning Per Share (EPS) onstand alone basis has marginally increased from `7.94 during previous year to ` 8.46 per share in thecurrent year.Cash Earning Per Share (CEPS)The Company’s Cash Earning Per Share (CEPS) onstand alone basis is ` 16.16, which was ` 18.58 inthe preceding year.InvestmentThe Company’s investment portfolio has increasedmarginally from ` 954.03 Crores in 2008-09 to `1024.65 Crores (excluding PRIL investment of ` 978.50Crores into FVRL) in 2009-10.The increase in investmentduring the year is mainly by way of subscription of sharesin Subsidiaries/Associates/Joint Ventures.Note: All above Balance Sheet and P&L numbers are ofPRIL with FVRL for the period ended as on 30-06-2010to make them comparable with previous yearnumbers.
PANTALOON RETAIL (INDIA) LIMITED44DIRECTORS’ REPORTToThe Members,Your Directors are pleased to present the Twenty Third Annual Report together with the Audited Statements ofAccounts for the year ended 30th June, 2010.FINANCIAL HIGHLIGHTSThe operating results of the Company for the year under review are as follows:` in Crores2009-2010 2008-2009Sales (Net ofTaxes) 5706.07 6,103.70Operating Income 228.30 238.35Other Income 84.63 6.06Total Income 6019.00 6,347.76Proﬁt before Depreciation &Tax 388.45 356.28Less: Depreciation 161.88 140.05Proﬁt beforeTax 226.57 216.23Less: EarlierYear’s IncomeTax (3.17) (0.27)Less: Provision forTaxation 37.25 75.38Proﬁt afterTax 179.56 140.58Add: Proﬁt brought forward from previous year 380.54 267.56Surplus available for appropriation 558.97 408.14APPROPRIATIONDebenture Redemption Reserve 25.00 -Proposed Dividend 17.13 11.57Provision for DividendTax 2.91 1.97Transfer to General Reserve 17.95 14.06Balance carried to Balance Sheet 495.98 380.54(Note: In view of the effect given in accounts to the Schemes of Arrangement and for the realignment of thebusiness undertaken during the year, the ﬁgures for the current year are not comparable with those of theprevious year).REALIGNMENT OF BUSINESSThe Company’s value retail business has grown in sizeand scale during the past couple of years and in order tobring in a more focussed approach towards growing itfurther, the Company realigned its value retail andlifestyle retail business under two separate companies.Accordingly, Value Retail Business operated through theformats such as Big Bazaar, Food Bazaar and other valueretail formats such as Fashion@Big Bazaar, FashionStation, Depot, Health Village, Wholesale Club andNavras were transferred to the wholly owned subsidiaryof the Company, Future Value Retail Limited (FVRL) witheffect from 1st January 2010. This move would enableboth the Companies, to concentrate on their respectivegrowth plans and would bring in core competency intheir respective businesses.The Company also initiated a number of steps towardscreating a Retail Pure Play by divesting or demerging anumber of non-retail subsidiaries and merging someof the retail businesses. These are listed further inthis document.REVIEW OF PERFORMANCEThe Company has recorded growth (after transfer ofvalue retail business operations w.e.f. January 2010) inboth the topline as well as in bottom line. Income fromoperations for the current year stood at ` 5934.37 Crorescompared to FY08-09 operating income of ` 6341.70Crores. Further, PBDIT stood at ` 676.69 Crores in FY09-10,compared to PBDIT of ` 674.50 Crores for the FY 08-09. PAT for the year FY09-10 stood at ` 179.56 Crorescompared to PAT of ` 140.58 Crores for the FY 08-09.
ANNUAL REPORT 2009 - 2010 45The performance for the current year cannot be comparedwith the previous year due to the realignment exerciseinitiated by the Company. However, as you wouldobserve, in like to like growth the Company has improvedits performance.SCHEME OF ARRANGEMENT:As part of the realignment exercise, the Company hascompleted two Schemes of Arrangement, detail of whichare given hereunder.Scheme of Arrangement between Home SolutionsRetail (India) Limited (HSRIL) and the Companyand their respective Shareholders and Creditors(“the HSRIL Scheme”)As part of consolidation initiative of Consumer Durable,Home Furnishing, Home Improvement, and FurnitureBusiness of its subsidiary, Home Solutions Retail (India)Limited (HSRIL) with the Company, the HSRIL Schemewas moved under Sections 391-394 of the CompaniesAct, 1956.Your directors are pleased to inform that the HSRILScheme has been approved by the Hon’ble High Court ofJudicature at Bombay on 24th August, 2010, andthereafter on ﬁling of the certiﬁed copy of the court orderwith Registrar of Companies, Maharashtra, Mumbai, on27th August, 2010, the entire assets and liabilitiespertaining to business undertaking except ‘Collection i’of Home Solutions Retail (India) Limited (HSRIL), a66.86% subsidiary of the Company, were transferred andstand vested in the Company as a going concern,effective from 1st April, 2009 (“Appointed Date”).In Consideration of the transfer of the BusinessUndertaking, as provided in the HSRIL Scheme, theCompany has issued during the current year (FY 2010-11)shares to HSRIL investors (other than the Company)aggregating to 59,28,818 fully paid Equity Shares of ` 2/-each and 63,47,635 fully paid 0.01% CompulsoryConvertible Preference Shares (CCPS) of ` 100/- eachconvertible into 63,47,635 fully paid Equity Shares of` 2/- each within a period of 12 months from the date ofallotment but not later than 31st July, 2011 such thatequity shares and 0.01% CCPS of the Company would bedeemed to be issued in consideration of equity sharesheld by them in HSRIL.Scheme of Arrangement between the Companyand Future Mall Management Limited (FMML) andFuture Merchandising Limited (FML) and theirrespective Shareholders and Creditors (“the FMMLScheme”).Further as part of its initiative of removing all non-corenon-retail business from the Company, a Demergerexercise was moved under which the Mall Management,& Project Management Business Undertaking were beingdemerged into Future Mall Management Limited(‘FMML”) wholly owned subsidiary of the Company andMall Asset Management Undertaking & Food ServicesUndertaking were being demerged into FutureMerchandising Limited (“FML”) wholly owned subsidiaryof FMML pursuant to the FMML Scheme under Sections391-394 of the Companies Act, 1956.Your Directors are pleased to inform that the FMMLScheme has been approved by the Hon’ble High Court ofJudicature at Bombay on 24thAugust, 2010 and thereafteron ﬁling of the certiﬁed copy of the court order withRegistrar of Companies, Maharashtra, Mumbai, on28th August, 2010, the entire assets and liabilities of MallManagement Undertaking and Project ManagementUndertaking of the Company were transferred to FutureMall Management Limited (“FMML”), a wholly ownedsubsidiary (WOS) of the Company and Mall AssetManagementUndertakingandFoodServicesUndertakingof the Company were transferred to Future MerchandisingLimited (“FML”), a WOS of FMML, effective from 1 April,2010 (“Appointed Date”).Pursuant to the approved scheme, the FMML shall,without any further application or deed, issue and allotshares, credited as fully paid up, to the extent indicatedbelow, to the members (including Class B (Series 1)shareholder) and the compulsory convertible preferenceshareholders of the Company whose name appears inthe Register of Members of Company as on the RecordDate i.e., 20th September, 2010 or to their respectiveheirs, executors, administrators or other legalrepresentatives or the successors-in-title, as the casemay be, in the following manner:“1 (One) fully paid Equity Share of ` 10/- (Rupees TenOnly) each of FMML shall be issued and allotted for every20 (Twenty) Equity Shares of ` 2/- (RupeesTwo) each heldin the Company.1 (One) fully paid Equity Share of ` 10/- (RupeesTen Only)each of FMML shall be issued and allotted for every 20(Twenty) Class B (Series 1) shares of ` 2/- (Rupees Two)each held in the Company. And1 (One) fully paid up Equity Share of ` 10/- (Rupees TenOnly) each of FMML shall be issued and allotted for every20 (Twenty) compulsory convertible preference shares of` 100/- (Rupees One Hundred Only) each held in theCompany.”The shareholders of the Company will be allotted equityshares by the resulting Company (FMML), in terms of theScheme. Fractional entitlement would be consolidatedand allotted to one of the persons nominated by FMMLBoard. Sale proceeds of these shares will be distributedto shareholders who were entitled to such fractionalshares. The shares of the FMML will be listed on theStock Exchanges after compliance with the requirementsof the stock exchanges and regulatory authorities.DIVIDENDTheBoardofDirectorsoftheCompanyhasrecommendeda dividend of ` 0.80 (40%) per equity share on theincreased capital of 20,11,42,539 Equity Shares of ` 2/-each (previous year ` 0.60 per share) and dividend of `0.90 (45%) per Class B share (Series 1) on 1,59,29,152Class B Shares of ` 2/- each (previous year – ` 0.70 pershare) fully paid-up for the Financial Year 2009-10 &0.01% per Compulsorily Convertible Preference Shares(CCPs). On 63,47,635 CCPs of ` 100/- each. Further,warrants converted into shares on or before the BookClosure / record date announced for the dividend, wouldalso be entitled to dividend declared by the members atthe ensuing Annual General Meeting. The dividend willbe declared at the ensuing Annual General Meeting bythe Shareholders.
PANTALOON RETAIL (INDIA) LIMITED46On account of the realignment exercise initiated duringthe year and Schemes of Arrangement as explained hereabove, the dividend ﬁgures for the current year andprevious year are not comparable.EQUITY SHARE CAPITALPaid-up Share CapitalEquity CapitalDuring the year under review, the equity share capital ofthe Company has been increased from ` 38,06,41,346/- to` 41,22,85,746/- due to the following further issue ofcapital as follows:• Allotment of 1,58,22,200 Equity shares of ` 2/- eachat a premium of ` 314/-(Rupees Three HundredFourteen only) per equity share aggregating to anissue price of ` 316/- (Rupees Three HundredSixteen Only) to Qualiﬁed Institutional Buyers(QIBs) on preferential basis pursuant to ChapterVIII of the Securities and Exchange Board of India(Issue of Capital Disclosure Requirements)Regulations, 2009.Further, during the current ﬁnancial year 2010-11following further issue of capital has been completed.• Allotment of 59,28,818 Equity shares of ` 2/- eachto the shareholders of Home Solutions Retail (India)Limited (HSRIL) as per the Scheme of Arrangementapproved by the Hon’ble High Court of Judicature atBombay.• Allotment of 63,47,635 Compulsorily ConvertiblePreference shares of ` 100/- each to the shareholdersof Home Solutions Retail (India) Limited (HSRIL) asper the Scheme of Arrangement approved by theHon’ble High Court of Judicature at Bombay.WarrantsAs on the start of the year under review lacs warrants,which were allotted to the Promoter group company,were pending to be converted into Equity Shares. Thesewarrants had been converted into equity shares by thewarrant holders on 9th September, 2010 during thecurrent ﬁnancial year (FY 2010-11) by making payment ofbalance 75% due on these warrants.Further, during the year under review, the Company hasfurther allotted 100 lacs warrants, each to be convertedinto equity shares at a price of ` 400/-. These warrantswere issued and allotted on 29th June, 2010. Thesewarrants could be converted into equity shares asper terms of issue of warrants at any time before28th December, 2011.DEBENTURES:During the year under review, the Company has raisedlong term funds in two tranches through Non-Convertible Debentures aggregating ` 500 Crores. Thefunds raised were utilised for the objects as stated at thetime of raising funds. These has helped the Company toimprove its debt maturity proﬁle and reduce the cost ofdebt.FIXED DEPOSITSThe Company has not accepted any Deposits duringthe year.REPORT ON CORPORATE GOVERNANCEA detailed report on Corporate Governance togetherwith Auditors certiﬁcate as required under clause 49 ofthe listing agreement the has been included as anattachment to this Report.MANAGEMENT DISCUSSION & ANALYSIS REPORTThe management discussion and analysis as requiredunder clause 49 of the listing agreement has been dealtwith extensively as part of this Annual Report.THE FUTUREAfter sustaining the economic slow down with itsstrategic and conﬁdent moves, the year under reviewwas a welcome change from many perspective. TheCompany has initiated its strategic decision to focus onthe retail business where it has core competency andmonetise the other support businesses or demerge thesame from the main company.The Company in the saidstrategic move, transferred itsValue Retail Business to itswholly owned subsidiary and consolidated its homefurnishing and improvement as well as electronicbusiness. Further the non-core retail business related tothe mall management, project management, mall assetmanagement and food services businesses were movedintoseparatecompanies.TheCompanyandmanagementis committed to complete the initiative of theconcentrating in pure retail play and would be coming toyou for few more approvals to demerge / sale / transferthe other non-retail non-core businesses.Your Company has planned to increase its operating retailspace from around 11.65 million square feet currently toaround 13.25 million square feet by FY 2010-11.During the year, as per mandate received from theshareholders, the Company managed to reduce thenumber of subsidiaries from 30 at the beginning of theyear to 25 at the close of the year. Further, during thecurrent year also the Company is planning to reduce thenumber of other subsidiaries, which are not required tobe retained under the Company and can be eithermonetised or transferred, without affecting its corebusiness activities. The Company has incubated fewsupport businesses under various subsidiary companies,which were in its startup phase during the FY2008-09and also suffered some setback due to slowdown of theeconomy. The Company would be identifying all suchbusinesses and evaluate the need for further nurturingand development of such businesses or considerdivestment/unlocking value. The Company continues tobelieve that the support businesses of the varioussubsidiaries would create value over a long run and theCompany would be able to unlock such values in future.The Company continues to analyse customer spend onvarious categories and accordingly ﬁnalise its strategy tofurther enhance shareholder’s wealth by strengtheningexisting business and taking new initiatives that helpsincrease its share in four key categories that the Companyis focussing on. The four key consumption categoriesare: food, fashion, general merchandise and home, whichincludes home improvement products and consumerelectronics.
ANNUAL REPORT 2009 - 2010 47SUBSIDIARY COMPANIES & JOINTVENTURESSUBSIDIARY COMPANIESAs informed above, during the ﬁnancial year 2009-10, tofulﬁl commitment made to the members, the Companyhas reduced in all ﬁve subsidiaries from its total list ofsubsidiaries. These were, Pairs Retail India Limited(Formerly known as Home Lighting India Limited), FutureBrands Limited, Future Consumer Enterprises Limited,Future Consumer Products Limited and Future CapitalCredits Limited. The Company now have in all 25subsidiaries as at the end of ﬁnancial year 2009-10.Further, as per the order given in case of FMML schemeby Hon’ble High Court of original judicature of Bombay,the investment held in Future Mall Management Ltd.(FMML) has also been cancelled with effect from 1stApril, 2010. Hence, FMML and its wholly ownedsubsidiary, Future Merchandising Ltd. were or notconsidered as subsidiary of the Company as on 30thJune, 2010.Future Capital Holdings LimitedFuture Capital Holdings Limited (FCH) is the ﬁnancialservices arm of the Company. FCH is involved in thebusiness of providing retail ﬁnancial services, corporatelending, wholesale credit, trade ﬁnance and assetmanagement and advisory services. Post FCH’s publicoffer, your Company has 54.14% stake in FCH. DuringFY09-10, FCH registered income from operations of ` 55.38Crores and its proﬁt after tax stood at ` 17.32 Crores.Home Solutions Retail (India) LimitedHome Solutions Retail (India) Limited (HSRIL) wasincorporated to operate in the home and hard goodsconsumption space. However, as part of the demergerscheme, the various business undertakings of HSRIL hasbeen transferred to the Company leaving only ‘Collectioni’ format under HSRIL. During FY09-10, HSRIL registeredan income from operations of ` 13.59 Crores and acorresponding loss of ` 3.62 Crores.Future Supply Chain Solutions Limited (Formerlyknown as Future Logistic Solutions Limited)Future Supply Chain Solutions Limited (FSCSL) is aspecialized company providing logistics, reverselogistics, transportation, distribution and warehousingspace and related services to the Company and itssubsidiaries. FSCSL provides solutions in the areas ofintegrated Supply Chain Management, warehousing,distribution and Multi Modal transportation. YourCompany has 94.23% stake in FSCSL. FSCSL haswarehousing space of 3.50 Million square feet spreadover all across India. The company is currently buildinglarge scale warehousing facilities and will focus onproviding 3PL logistics solutions. During FY09-10, FLSLregistered income from operations amounted to ` 196.73Crores and the proﬁt stood at ` 0.24 Crores.Future Agrovet Limited (Formerly known as PantaloonFood Product (India) Limited)Future Agrovet Limited (FAL) is designed to strengthensourcing and distribution of staples and other foodproducts for the Company. FAL has sourcing anddistribution bases at all key cities across the country.TheCompany has 96.16% stake in PFPIL. During FY09-10,PFPIL registered income from operations amounting to` 577.64 Crores and loss stood at ` 0.27 Crores.Future Media (India) LimitedFuture Media (India) Limited (FMIL) is a specialisedcompany aimed at creation of media properties in theambience of consumption and thus offers activeengagement to brands and consumers. FMIL offersrelevant engagement through its media properties likeVisual Spaces, Print, Radio, Television and Activation.Your Company has 84.24% stake in FMIL. During FY09-10, FMIL registered income from operations amountingto ` 35.70 Crores and the loss stood at ` 5.63 Crores.Future E-Commerce Infrastructure LimitedFuture E-Commerce Infrastructure Limited (FECIL) isdesigned to capture the consumption space through theinternet, as well as other technology based and digitalmodes. The Company has 72% stake in FECIL. DuringFY09-10, FECIL registered income from operationsamounting to ` 116.69 Crores and the loss stood at` 13.94 Crores.Future Mobiles and Accessories LimitedFuture Mobile and Accessories Limited (FMAL) isdesigned to cater to the consumer’s need in the space oftelecommunications products. The Company has 100%stake in FMAL. During FY09-10, FMAL registered incomefrom operations amounted to ` 234.23 Crores and lossstood at ` 3.07 Crores.Futurebazaar India LimitedFuturebazaar India Limited (FBIL) is set up as thee-Retailing arm of the Future Group for providing on-lineshopping experience.Your Company is presently holding100% in FBIL. Futurebazaar.com was launched in 2007.FBIL is successfully operating its e-retailing businessand during FY09-10, FBIL registered income fromoperations amounting to ` 64.55 Crores and its proﬁtafter tax stood at ` 0.24 Crores.Future Knowledge Services LimitedFuture Knowledge Services Limited (FKSL) is a retailtechnology service provider for high quality, low costservices model catering to the entire retail value chain.The Company has 100% stake in FKSL. During FY09-10,FKSL registered income from operations amounting to` 57.23 Crores and loss stood at ` 5.47 Crores.Future Value Retail Limited (Formerly known asPantaloon Future Ventures Limited)During the year as part of its realignment initiative, theCompany has transferred its Value Retail Business to itswholly owned subsidiary company, Future Value RetailLimited (FVRL). During FY09-10, FVRL has startedoperations commencing from January, 2010 andregistered income from operations amounting to` 2991.71 Crores and Proﬁt stood at ` 50.60 Crores.The transfer of Value Retail Business to FVRL has beendone with the objective of having clear driving factor for