Strong consumer sentiment and better-than-expected festive season sales have been the key highlights for the retail sector, for the quarter ended December 2010. During the quarter, the trend of consumer moving into premium products sustained, although analysts expect growth rates to soften y-o-y due to a higher base effect. On an average, the sector is expected to post 38.6% growth in sales and a net profit growth of 46% y-o-y.
Brokerages expect sustained sales growth for major firms like Pantaloon Retail (PRIL), Shoppers Stop and Titan Industries. Near-term margin expansion would be slow for players like PRIL due to high input costs. The numbers are not comparable for PRIL due to the inclusion of the home retailing business in its estimates. Categories like apparel, accessories, consumer durables and home furnishing saw a sales uptick on sustained discretionary demand.
Observes Amnish Aggarwal and Nikhil Kumar of Motilal Oswal, for Pantaloon the core retail sales will grow at 43.8% yoy to Rs 2,750 crore. However, the operating margins are likely to be down 150 basis points due to higher input costs in the fashion segment and an increasing contribution by the low-margin foods business in the overall pie. The net profit growth is likely to be limited by higher interest costs and the EBITDA is expected to be about Rs 250 crore. Margins for Shoppers Stop, which gained 86% since the beginning of FY11, are likely to be flat yoy at 10.1%, as the benefits of mix improvement are likely to be offset by rentals and employee costs.
Yash Jhaveri, research analyst at Enam Securities Pvt Ltd says, ?Buoyed by the festive season and strong consumer sentiment, the retail sector in Q3FY11 is poised for growth in low teens. For major retailers like Pantaloon, the topline is expected to be around Rs 2,700 crore, with a 12% growth yoy, while profits from the quarter should stand at Rs 56 crore. In the specialty retail segment, Titan Industries is poised to record a 55% growth yoy in bottomline.? Titan is expected to outshine among the retail pack as analysts believe it to be among the best on urban consumption in the specialty retail segment. It is expected to post a turnover of Rs 1,800 crore, led by strong growth in jewellery segment, says Motilal Oswal.