Pantaloon's revenue growth of 57 per cent in the March 2008 quarter is the slowest in the last five quarters and was driven to some extent by higher other operating income and higher institutional sales.

The retailer's sales growth has come off from 80 per cent in the second half of FY07 to 60 per cent in the last two quarters. Same store sales appear to be picking up --for the March quarter they were about 15 per cent---but are not encouraging enough.

What's worrying is that the retailer's gross margins came off by 290 basis points in the quarter to 29.7 per cent because of a higher proportion of value retailing which increased to about 70 per cent from 66 per cent seen in earlier quarters.

Besides, the retailer sold a larger amount of relatively lower-margin electronics goods. While the operating profit margin improved by 140 basis points to 8.4 per cent, it was because of lower expenses on staff—down 80 basis points-- and other items.

Also, after several quarters, the increase in the inventory to sales ratio rose in just single digits at 8 per cent, possibly due to year- end clearance sales. Nonetheless, average inventory levels remain fairly high at about 90 per cent of quarterly sales.

Pantaloon's strength is its presence across multiple categories and operations across 40 cities. The retailer is scaling up fairly rapidly and aims to cover a space of 20 million sq ft by 2010 from 7.3 million currently.

However, subsidiaries such as Homesolutions which now contribute 10 per cent of consolidated revenues, are incurring losses.

Moreover, the environment remains competitive and as such Pantaloon's sales growth will probably taper off to 53-54 per cent in FY09 with operating margins in the region 8 per cent.

Pantaloon should close FY08 with sales of Rs 5,500 crore and adjusted net profits of close to Rs 100 crore.

At the current price of Rs 455, the stock trades at around 38 times FY09 estimated earnings and is expensive.