Q4 results preview: Retail sector demand remains muted, soft recovery await in value space; Trent, DMart likely outliers
- Q4 Result Preview: Retail sector demand remains subdued with slight sales improvement in February. March 2024 festivals could enhance demand. Revenue to rise by 21% YoY in 4QFY24. VMart Retail shows signs of recovery with 4% SSSG.
The retail sector's demand is expected to remain muted, according to domestic brokerage Motilal Oswal Financial Services' Q4FY24 result preview report. This is because January's sales were weak and February's sales were marginally better, thanks in part to the prolonged winter season and the wedding season. March 2024 festive events, like Holi and Eid, may enhance demand. Compared to Tier 2/Tier 3 cities, metro areas and Tier 1 cities/towns continue to do better.
The brokerage projects that overall revenue would rise 21% YoY to ₹10,6000 crore in 4QFY24, mostly from footprint expansion, because same-store sales may continue to be weak for the majority of merchants.
The brokerage pointed out that while Trent Ltd/Avenue Supermarts Ltd (DMart) may be the outlier in the market, premium companies like Metro Brands Ltd, Aditya Birla Fashion and Retail Ltd, and Shoppers Stop Ltd are also seeing muted demand.
Nonetheless, the brokerage expressed its possibility for a mild rebound in the value sector, namely in VMart Retail Ltd. and Pantaloons.
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In its pre-quarter update, VMart recorded 4% standalone same-store sales growth (SSSG), which suggests a comeback, according to Motilal Oswal. Because fewer weddings occurred throughout the quarter, Manyavar is facing a muted demand environment.
“Trent and Avenue Supermarts remain strong candidates (BUY), considering their healthy balance sheets and strong secular growth momentum. Additionally, we like Raymond, which could benefit from the demerger of its real estate and lifestyle businesses.
We continue to monitor VMart Retail, given its comfortable valuations, recovery in SSSG, and likelihood of a decline in losses. In the footwear space, Metro Brands remains a strong player (BUY) for its effective retail economics and healthy growth potential; however, the subdued demand environment may keep the stock rangebound for a few months,” the brokerage said.
Store additions to continue despite challenges
According to the brokerage's study, retailers typically have a strong quarter when it comes to store expansions. It anticipates that all of the players it covers will continue to have shop additions.
24 new stores were added in 4QFY24, according to a pre-quarter report from DMart (vs. 17 in 9MFY24). Nonetheless, VMart liquidated 19 loss-making locations as anticipated, which led to a net closure of 10 locations in 4QFY24. Trent, Metro, Raymond, and Intune are anticipated to be major outliers when it comes to aggressive shop additions. In 4QFY24, Westside/Zudio is expected to add 6/27 shops, bringing their overall store count to 233/444, according to the brokerage.
Weak SSSG to weigh on margins
As to Motilal Oswal, the drop in raw material costs has alleviated the strain on gross margins. The brokerage anticipates that retailers won't raise prices this quarter because of the muted demand.
“Accordingly, we expect gross margins to remain flat YoY. However, a decline in SSSG could hurt store productivity and lead to operating deleverage. We expect overall PAT to grow by 9.6% YoY for our coverage universe,” the brokerage said.
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Business NewsCompaniesCompany ResultsQ4 results preview: Retail sector demand remains muted, soft recovery await in value space; Trent, DMart likely outliers
First Published:8 Apr 2024, 01:10 PM IST
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