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Consumer spending surge seen boosting retailers’ earnings

Consumer spending surge seen boosting retailers’ earnings
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First Published: Fri, Apr 22 2011. 01 13 AM IST
Updated: Fri, Apr 22 2011. 01 13 AM IST
New Delhi : Analysts expect retailers to report a significant jump in revenue and profit in the January to March quarter, thanks to a surge in consumer spending.
However, many analysts expect profit at the largest retailer, Pantaloon Retail (India) Ltd, to be flat or decline due to margin pressure, interest payments and expected losses from the home segment.
Sangeeta Tripathi, who tracks retail companies for Sharekhan Ltd, said she is “bullish” on revenue as there has been a rise in shoppers. However, net income may be a mixed bag—high profit of 37% for Titan Industries Ltd to a possible 16% decline in the same measure for Pantaloon.
“There will be pressure on Pantaloon’s margins and higher interest cost will impact its profitability,” Tripathi said, adding that interest outgo on debt for the quarter was Rs 100 crore.
Sharekhan expects Pantaloon’s revenue to jump 32% to Rs 2,712 crore from the year earlier, while profit will shrink to Rs 47 crore from Rs 55.8 crore. Sharekhan expects the second largest listed retailer, Shoppers Stop Ltd, to maintain momentum on sales and margins.
Tripathi expects Shoppers Stop’s sales to rise 20.9% to Rs 460.7 crore and profit to swell 23.6% to Rs 15.7 crore. “Shoppers Stop doesn’t have debt on its balance sheet and it’s a clean book,” she said. Therefore, whatever margins the company earns will be reflected in the profitability, she said.
Retailers are expected to report positive numbers on revenue, said Vijay Chugh, director, research, at Mumbai-based Ambit Capital. He expects Pantaloon to report a 41% increase in sales and flat profit. “There is a challenge on margins and gross margin will decline.”
Sastha Gudalore, a retail analyst for Alchemy Share and Stock Brokers Pvt. Ltd, said Pantaloon will see margin pressure on both its food and fashion businesses. He said the firm has absorbed some input costs, including rising cotton prices, rather than passing them on.
Cotton prices nearly doubled to Rs 54,500 per bale over the last year, according to the National Commodity and Derivatives Exchange Ltd.
On the other hand, Pantaloon’s food business has been facing competition from other retailers including D-Mart and Star Bazaar, among others, according to Alchemy Share.
“They have been targeting 30% revenue growth and in order to achieve that growth you have to remain competitive in your pricing,” Gudalore said. “So, I would guess they had tried to remain rather competitive on the pricing, which would have resulted in lower gross margin on the food side as well.”
ICICI Securities Ltd expects retailers including Pantaloon, Shoppers Stop and Titan to post a 36% revenue increase in the latest quarter on “buoyant demand” from consumers that led to healthy 15-20% same-store growth, a yardstick to gauge sales growth for stores that existed for a year or more.
“We expect marginal pressure on the operating margin of Pantaloon Retail and Shoppers Stop on the back of rising input costs and also (due to) loss-making businesses (Home Town and HyperCity),” ICICI Securities said in its latest report.
It expects Titan to report an 1.8 percentage point margin expansion to 9.8%, riding on increased sales in studded jewellery and with the launch of premium watches.
It forecasts Pantaloon will report a 38% rise in revenue to Rs 2,856 crore and profit after tax to decline to Rs 54.7 crore from Rs 55.8 crore. It expects Shoppers Stop’s revenue to increase 87% to Rs 714 crore and profit to swell 47% to Rs 18.6 crore.
rasul.b@livemint.com
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First Published: Fri, Apr 22 2011. 01 13 AM IST