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Retail: Marred by multiple footfall dampeners
3Q was marred by multiple footfall dampeners - 1. Weak consumer sentiments, ergo weak volume off-take, 2. Socio-political protests (CAA & NRC-led), 3. Competitive intensity continued to heighten (especially across food & grocery and apparels). Jewellery – Volume pressure palpable: Jewellery retail continues to face volume pressures as elevated gold prices (up 25% YoY) keep fresh jewellery purchase at bay. Albeit, we reckon a reasonable wedding season (relatively inelastic demand) is expected to cap the magnitude of decline. Jewellers are expected to push volumes via aggressive exchange programs to navigate the weak demand outlook. However, this would in turn come keep margins under pressure. An exchange programme typically gets capital-heavy, if the up-selling opportunity it presents is not milked. Hence, a key monitor-able would be to assess the capital base of jewellers over the next couple of quarters. Most of the big-box jewellers have clocked 7-15% revenue growth in 3Q. (channel checks)
Food & grocery - Competitive intensity heightening: Online grocers have been stepping up the heat on pricing, while smartly improving trade margins. However, most are yet to build a strong supply chain in D-MART geographies, hence the latter’s gravy train is expected to continue in 3Q as it milks India’s urban density. Future Retail on the other hand, is expected to focus on fixing its working capital woes and closing down loss-making stores. Ergo, growth may take a back seat.
Apparel – Value/fast fashion plays to outperform brands: Expect most apparel retailers to clock weak SSSG (Ex-Trent) as 1. Aggressive online festive sales, 2. Ongoing consumer slowdown, 3. Sociopolitical protests keep footfall growth at bay. Channel checks suggest Myntra’s FY19 aggression on discounting and brand tie-ups continues. Hence, pure-play 3P-selling department stores remain at risk. We build in a (8)-4% SSSG for most. (Ex-Trent). Trent is expected to clock 9% SSSG in 3Q. Economics to keep strong value fashion (V-MART) plays off-limits for e-tailers. Key brands to tread the growth-working capital equation cautiously and hence, growth may assume a back seat (Ex-Madura).
Top-picks: V-MART (BUY), Avenue Supermart (SELL)
Retail: Expect 12% Sales and EBITDA growth
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