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Robust showing on expected lines

Q3FY22, on expected lines, was a record quarter for some (Titan, Page and Trent), with a full recovery for others (apparel retailers). Overall, revenues were up 30% YoY. Key highlights: i) Jewellery continued its outperformance. We believe, while growth ahead may moderate, it will remain robust. ii) Apparel retail saw the highest beat, driven by Trent and ABFRL as festive and marriage seasonsturned in better than expected. Trent sustained its outperformance and record showing. iii) QSRs saw an incremental recovery in dine-in drive with delivery staying stable QoQ. Jubilant Foodworks (JFL) was a laggard due to weak dine-in recovery, impacted by omicron.

Jewellery: Marriage and festive season drive another strong quarter

Jewellery business for Titan (up 31% YoY, 159% of Q3FY20), clocked robust growth, and outpaced peers. Demand remained robust, driven by marriage plus festive season and this category continues to lead in terms of recovery. Titan reported a multi-quarter high margin (for the festive quarter), driven by better product mix and higher realization. While such high double-digit revenue growth may moderate (and earning upgrades too), Titan continues to be a compelling structural story.

QSRs: Robust recovery as dine-in bounces back; JFL lags peers

All QSR companies surpassed pre covid revenues with incremental recovery driven by Dine-in as delivery remained stable. JFL lagged in recovery versus peers mainly because of its weaker recovery in Dine-in (including Takeaway) as the company was impacted by Omicron impact towards the end of December.

Apparel Retail, innerwear: Stable progress; raw material headwind

The festive and marriage season became a trigger for apparel retailers also, touching pre-covid revenue run rate, a first. Also, divergence in recovery continued with Trent outpacing peers again. Page Industries continued its robust revenue growth (in-line). Margin pressure remains a key moniterable across players

Outlook: Eye on underlying growth; focus back on fundamentals

All categories have now achieved normalisation (pre-covid sales trajectory) and except for the Omicron impact in January, things are back on the trajectory. RM prices (and potential GST hike, deferred for now) remain a near-term headwind for Apparel Retail, especially for a value retailer like V-Mart Retail (ASP: ~INR350). Our top picks are Trent (traction in growth driven by Zudio) followed by Titan (massive market share opportunity ahead). Jubilant FoodWorks (strong foodtech franchise with robust store potential) also remains among our top picks. While the company had a slowdown this quarter in dine-in, we believe, this will correct course as restrictions ease. We remain cautious on Avenue Supermarts (potential headwinds from rising e-grocery penetration and valuation).

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