A subdued Q4FY16, impacted partly by jeweller’s strike in March 2016, marked the end of a weak FY2016, a year where consolidated EBITDA declined 17% y-o-y. PAT decline was lower at 14% on account of lower ETR. Weak FY2016 sets a good base for an improved year of growth metrics in FY2017E, but an assumption that a good FY2017E would mark a return to a sustained multi-year high-growth phase is stretched, in our view. The stock seems to be pricing in such assumptions; we remain cautious. Rollover to March 2018 prevents a TP cut.
Quick summary of the 4QFY16 earnings report —standalone revenues declined 2% y-o-y to 24.6 billion, EBITDA declined 14% y-o-y to 2.3 billion while recurring PAT (adjusted for one-off VRS and large-format store closure expenses) declined 8% y-o-y to 1.98 billion. PAT decline was lower as adjusted ETR was lower y-o-y at 9.5% versus 14.7% in the base quarter. PBT declined 13% y-o-y. We discuss segmental performance later in the note.
Consolidated revenues, EBITDA and recurring PAT declined 5.3%, 17%, and 14% respectively. EBITDA and PAT for the year were both lower than FY2013 levels despite a 150 bps higher gross margin in FY2016 versus FY2013 levels. Subdued sales growth (3.7% three-year CAGR) meant operating leverage pressure on operating margins. Most importantly, FY2016 was the fifth straight year of y-o-y decline in return ratios; ROCE declined to 24% from 61% in FY2011 while ROE dipped to 21% from 49%.