Khambatta Securities' research report on Cantabil Retail India
A branded retail play in the vast mid-premium segment of the apparels market, Cantabil has developed a scalable business model and looks to capture the huge market opportunity by expanding aggressively. Cantabil’s strategy of using a combination of own and outsourced facilities in manufacturing and retailing allows it to operate an asset-light model while expanding rapidly and effectively managing inventory. With a revamp of business model, aggressive target for average sales per store looks achievable while brand loyalty, increasing footfall conversion and higher average billing will boost sales going forward. Heavy expansion into underpenetrated Tier 2 and 3 markets with robust demand potential is a credible strategy for growth and cost reduction. Strong presence in smaller towns allowed opening up of stores early following the COVID-driven lockdown.
With overall demand environment remaining weak, we expect a fall in FY21 revenues, followed by a sharp recovery in FY22 aided by pent-up demand. Margins are also expected to recover following a decline due to a difficult operating environment in FY21 with incremental effect at the PAT level due to lower interest expense / debt, leading to solid gains in return ratios. Basis strong earnings growth forecast, the Cantabil stock trades at a very attractive forward P/E of 13.5x FY22E EPS. Valuing at 18.0x FY22E EPS, our target price of Rs 398 informs a BUY rating with an upside potential of 33%.
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