A slowdown in volume growth, margin pressure and a downtrend in consumers? discretionary spends have been the key highlights of the retail sector in the first quarter of the financial year 2011-12.
While analysts expect retail majors to witness some moderation in same store sales growth to high single digit from double digit in the earlier quarters, the overall sector is poised for a sales growth of 27% and an EBITDA growth of 31%. Meanwhile, profit after tax (PAT) is estimated to grow 16% due to a low tax rate in the base year for retailers like Jubilant FoodWorks and Pantaloon Retail.
However, Pantaloon is likely to witness a margin expansion. Nikhil Vora, managing director, IDFC Securities, said, ?Pantaloon will see a margin expansion on a year-on-year as well as a quarter-on-quarter basis, as recent price hikes will take care of the input cost pressure.? A report by Enam Securities estimates Pantaloon’s sales for the quarter, at R2,930 crore, with a net profit of R52 crore.
Meanwhile, Shopper?s Stop margins on a like-to-like basis are expected to remain stable, with losses for its hypermarket business, Hypercity, at R17 crore for Q1FY12.
For speciality retailer Titan Industries, the watch business is expected to grow at 15% and the jewellery segment, Tanishq, at 35%. Vora added, ?However, the company’s margins could contract by 70 basis points (bps) as the jewellery business outgrows the watch business.? Titan?s sales are expected to touch R1,640 crore with its net profit at R107 crore.
During Q1FY12, apparel volumes suffered a setback after a 12-15% price increase by most retailers whose margins were under pressure as a result of the hike in cotton prices. Amnish Aggarwal, SVP Research ? FMCG & Retail, Motilal Oswal Securities, said, ?Volumes are flat to slightly positive and sales growth in the quarter will be driven by an increase in realisations.? He also added that sales in non-essential categories like air conditioners, TVs and laptops dipped owing to inflationary pressures. ?However, sales of jewellery and watches were intact though the growth was low,? he says.
Going ahead, retailers are likely to bring ahead their end-of-season discounts, as they have been piling on inventory due to slow volume growth. Aggarwal added, ?End-of-season sales from July are expected to offer higher discounts. A decline in cotton prices will push retailers to offload as much stock as possible in Q2 and build up a momentum leading to the festive season in Q3.?