Sluggish same-store growth to continue in Q1: P Lilladher

Prabhudas Lilladher has come out with its earnings forecast report on retail sector for the quarter ended June 30, 2012 (first quarter of FY13).  

Excerpts from the report No respite yet; sluggish same-store growth to continue: We expect same-store performance in retail to remain sluggish as poor macros continue to prevent recovery in consumer sentiments, especially in discretionary categories. Despite preponement of discount sales season, footfalls haven’t picked up. We expect samestore volume growth to continue to decline in Q1FY13e, led by lower footfalls and conversion. Space expansion for PF should come in at 0.3m-0.4m sq.ft. However, Shoppers Stop (SHOP) continued with its expansion plans in departmental stores. Overall, same-store revenue growth could still come in at 4-5%, led by higher prices. Jewellery demand has recovered sequentially led by wedding calendar in May. However, higher gold prices continue to act as resistance. We expect Jubilant Foodworks (JUBI) to post strong 27% plus same-store growth. Overall, we expect our retail coverage universe to deliver 18% revenue growth YoY, driven by Titan Industries (TTAN) (higher Gold prices) and JUBI (SSS growth of around 27%). For traditional retailers like Pantaloon Retail (PF) and SHOP, growth will be driven primarily by space expansion and price inflation. We model for flat operating margins but higher interest costs in Pantaloon and HyperCITY losses in SHOP should restrict the retail universe PAT growth to 3%.  PF stitches two deals to reduce core retail debt: During the quarter, PF sold its Pantaloon Format business to AB Nuvo and also divested its 53.6% stake in Future Capital to Warburg Pincus. These deals, coupled with equity dilution to BCI, will help reduce core retail debt by Rs 22 billion.  FDI in multi-brand retail remains a pipe dream: Though some noise has again emerged on FDI in Retail with Commerce Minster speaking to CM’s of some states, we don’t see it happening soon, given the political complications involved as well as the consensus building required to pass this reform in current fractious political setup. Ikea has announced an investment plan of Euro1bn over the next several years in India.  Space addition remains lacklustre: Given the weak consumer demand and pressure on footfalls, most of the retailers are going slow on expansion plans. PF’s space addition should come in at 0.3-0.4m sq.ft in our view. SHOP added two stores during the quarter (Jalandhar and Pune) in line with its annual guidance of eight stores. However, Titan plans to add 0.25lakh sq.ft of space in Jewellery division which should provide a strong cushion to sluggish same-store growth in Tanishq, in our view.  TTAN remains our top pick in the sector: We see a long grind for the sector before recovery in same-store growth. Revival will be a function of improvement in macro prospect (better consumer confidence, rise in disposable income, wage hikes), in our view. In this environment, we continue to prefer TITAN which has a robust balance sheet and strong market dominance in its core categories.

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