Mumbai: Organized retailers are expected to report higher net profit and revenue for the three months ended June, benefiting from a turnaround in consumer sentiment and falling rentals, according to industry analysts. The earnings season for retailers begins 29 July when Shoppers Stop Ltd announces its results for the quarter.
Pantaloon Retail (India) Ltd, Shoppers Stop, Vishal Retail Ltd, Koutons Retail India Ltd, Trent Ltd and Provogue India Ltd are the only listed retailers in the country. A March report by global consulting firm KPMG estimated the size of the organized retail market at $25 billion (Rs1.21 trillion at today’s rates).
Analysts said retailers were likely to post revenue growth ranging from 15-25%, reflecting signs of an economic recovery that has been helped along by stimulus packages from the Union government. Pantaloon is expected to post better returns than the rest because of its value retailing model, a concept in which branded merchandise is sold at inexpensive prices.
Photo: Ashesh Shah/Mint
“Pantaloon is doing well as its main focus is value retailing and will outperform its competitors—Shoppers Stop, Vishal Retail, Koutons and others,” said Kunal Lakhan, an analyst at Mumbai-based brokerage KR Choksey Shares and Securities Pvt. Ltd.
Koutons, which surpassed analyst estimates in the March quarter, would also post a higher profit from the preceding quarter, he said.
Pragati Khadse, an analyst at Mumbai-based brokerage IIFL Capital (institutional equities), said profit growth for the firm is likely to be significantly higher than in the past two quarters because of lower interest costs although revenue growth could slow.
“For Pantaloon, sales growth will continue to remain muted at 21% year-on-year due to the subdued same-store sales growth as well as slowdown in new space addition,” she said.
Same-store sales growth is a statistic comparing sales of stores that have been open for a year or more.
Pantaloon had sales growth of 35.5% in the year-ago quarter. Space addition has slowed due to the credit crunch last year, and the company would not be able to benefit from lower staff costs by moving employees to subsidiaries because it had done so in the previous quarter, Khadse said.
India’s retail growth in recent years has been driven by an increase in disposable income, a favourable demography, changing lifestyle and high potential for penetration into urban and rural markets, the KPMG report said.
With the onset of the global economic slowdown, Indian retailers have been hit by a credit crunch that has all but halted expansion. Retailers have shut stores that have not been profitable and cut costs, particularly rentals, by renegotiating prices agreed upon in better times.
A number of retailers have experienced a decline in sales since October 2008 through March this year, resulting in an inventory pile up. This quarter, said analysts, the tide could turn as consumers start to spend again.
Finance minister Pranab Mukherjee has projected a gross domestic product (GDP) growth rate of at least 7% for the current fiscal at a time when mature economies such as the US are in recession.
Post the April-May general election, “there has been some serious improvement in consumer sentiment. The economy has more or less revived and most of the companies are taking back pay cuts that they had earlier announced”, Lakhan said.
Pantaloon had sales growth of 35.5% in the year-ago quarter. Ahmed Raza Khan / Mint
“With the increase in sales the top line is improving, (and) at the same time rentals have come down significantly. In some cases the commercial rentals have fallen by 40% from the peak,” he said. “Retailers had also taken various cost cutting measures during the economic downturn like consolidating operations, shutting down stores, reducing manpower (and) rationalized operational costs.”
Pantaloon posted sales of Rs1,381.38 crore in the June quarter last year and a net profit of Rs32.53 crore. Shoppers Stop had sales of Rs303.18 crore and a loss of Rs15.32 crore in the same period. Vishal Retail earned Rs396.90 crore of revenue and a profit of Rs14.01 crore while Koutons posted net sales of Rs157.84 crore and a profit of Rs10.84 crore.
However, analysts as well as the KPMG report caution that it would take at least 12-18 months beginning April for retailers to return to the growth they enjoyed in the years preceding the slowdown. The segment grew at about 50% between fiscal 2006 and 2008, but fell to 15% growth in fiscal 2009.
“The current slowdown is expected to last 12-18 months conditional on government incentives in increasing spends on infrastructure, development initiatives and other activities to stimulate (the) economy,” KPMG said.