Pantaloon Fashion (PFRL) is not going to be a block buster in short term?

Pantaloon Fashion and Retail (PFRL) is not going to be a block buster despite the merging news?

1.     The market cap of the company is close to 1800cr and one cannot manipulate on day to day basis. Last week there is a huge selling happened on every up move and it is near about 10 lakh for single day, which clearly tells the fact that any buying can be sold out.

2.     If everything goes in time merging will take 6-9 months time.

3.     Equity will raise mammoth eight fold from the current level of 92mn to 772 mn.

4.     The new entity will have a debt of Rs.1800cr post merging.

5.  Can expect a top line of 7500-8000cr post merging and NP margin of 5% (considering extreme positive cases) would translate to EPS of 4.8 only. Which clearly tells the fact that the price before merging news of around 110/- would be ideal price to buy. Now the stock appreciated almost 100% and there is no room to move up for short term.

6.  The company if is able to post the same 5% NP margin before merging would result to an EPS of 9 but the fact is that it is unable to come to profits.

Conclusion:

1. PFRL is a long term buy stock and not for short and medium term players.

2. CMP of Rs.200/- will not give any room to up move even for speculative people.

3.Considering the FY18E numbers also the stock likely to post an EPS of 4.8(considering extreme positive case) and a PE multiple of 30 would result 154/- and 40 would result 192/- considering two year period also valuations are very very stretched.

4. The stock might consolidate around the Rs.154/- in the medium term. In short term there might be a huge volatility.

With thanks

Be and make