Motilal Oswal has come out with its earnings forecast report on retail sector for the quarter ended June 30, 2012 (first quarter of FY13).
Brokerage firm expects their retail universe to post 27.9% YoY growth in sales, 33% YoY growth in EBITDA, and 26% YoY growth in PAT, led by strong growth in Jubilant Foodworks and Titan. However, Shoppers Stop is likely to report a modest 5% YoY growth in PAT. Excerpts from the report Consumer sentiment remains subdued; QSR leading growth As in the last few quarters, consumer sentiment remains weak. Apparel sales have been not been exciting post the discount season. Sales remain weak post the weak performance in 4QFY12. Also, home retailing and electronics have failed to show any improvement. Jewelry volumes remained under pressure, as higher gold prices continued to deter buying. Watch sales have been in line with previous quarters. However, growth in Quick Service Restaurants (QSR) remains steady on the back of more store openings and higher pricing. Overheads remain a drag on cash flows; low offtake post discount season Sales for apparel retailers remained weak. Retailers had offered aggressive discounts in 4QFY12. Post the discount season, sales have not been exciting. This coupled with committed capex plans will put strain on financials and increase debt in a high interest rate environment. Shoppers Stop is likely to add two more stores during the quarter while Jubilant Foodworks is likely to add ~18 stores. Titan is expanding Fastrack, Eyeplus and Helios at a quick pace. On-off noise on FDI in multi-brand retail During the quarter, there was again a buzz on foreign direct investment (FDI) in multibrand retail. A favorable outcome is likely post the Presidential elections scheduled in July 2012. Many states have formed a positive consensus while some are still against FDI. We believe letting in FDI will go a long way in increasing fund flows to the sector and enhancing growth rates. Cautious view - weak demand and expensive valuations We remain cautious on the sector in the near term. We believe segments like apparel, home retailing and jewelry will take some time to recover from the slowdown. High gold prices have become an overhang on jewelry sales volumes for Titan. Shoppers Stop will face pressure on profits due to slack demand and sharp increase in overheads, led by higher store openings. Jubilant Foodworks has strong cash flows; we would watch out for same store sales (SSS) growth trends and revenue from the newly opened Dunkin Donuts. We maintain our Neutral rating on Jubilant and Shoppers Stop. Titan has corrected in the recent past - we would watch for jewelry sales volumes.| Company (Jun 2012) | Sales | YoY % Chg | Net Profit | YoY % Chg |
| Jubilant Foodworks | 3,100 | 42.9 | 332 | 43.1 |
| Shopper's Stop | 5,050 | 28.5 | 123 | 5.1 |
| Titan Industries | 25,500 | 26.2 | 1,784 | 24.5 |
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