India retail sector to grow at 12% CAGR next 5 yrs: CLSA
Sep 10 2012, 12:00 | By Moneycontrol.com
Investment bank CLSA expects the retail sector in India will grow at a compounded annual rate of 12% over the next five years, with hypermarkets and fast food outlets growing faster than the overall market.
"The low penetration level of the organised channel leaves significant headroom for growth. In particular, we expect hypermarkets and fast food formats to sustain five year revenue CAGRs of 19-22%," said CLSA analyst Jaibir Sethi.
Growth in per capita GDP (gross domestic product) will cause the proportion of middle class population to rise from sub 6% to 13.7% over 2010-2016 and drive a growth in disposable income, he said.
CLSA has an "outperform" rating on Jubilant Foodworks, which operates Domino's Pizza and Dunkin Donuts' chains in India, given the strong growth in the sector.
"We like Jubilant Foods, given its strong brand, scalable model and capital efficiency. We see it as a strong play on medium term growth in Indian fast food," Sethi said.
Jubilant Foodworks last month opened its 500th Domino's outlet and plans to open 100 outlets this year. It will also open 80-100 Dunkin Donuts' outlets in the next five years. According to Euro Monitor 2012 report, Domino's has a 55% market share in the organised pizza market.
However, CLSA is not so bullish on Pantaloon Retail, despite being a dominant hypermarket operator. Pantaloon operates hypermarkets under Big Bazaar brand, apart from other outlets like Central, Home Town and Fashion @ Big Bazaar. The company has a total operational space of 16.71 million square feet.
Kishore Biyani promoted Pantaloon, however has had a huge debt of more than Rs 5,000 crore, which it is trying to cut by selling non-core assets. The Future Group recently sold its stake in consumer finance company Future Capital Holdings to PE firm Warburg Pincus. It has also announced plans to sell its Pantaloon apparel retail chain to Aditya Birla Group.
"Our view on Pantaloon remains negative given high gearing and chronic capital inefficiency," the CLSA analyst said.
CLSA is also cautious on department store operator Shoppers Stop and advises investors "sell" the stock, given cyclical headwinds and continuing losses in its hypermarket arm HyperCity.
HyperCity, which currently has 12 outlets, reported a net loss of Rs 21 crore in the first quarter. Its CEO Mark Ashman told moneycontrol.com last month that the company should post profits by FY15.
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