Home >Markets >Mark To Market >New covid-19 wave weighs on the recovery of retail firms in Q4

Soaring covid-19 infections are expected to haunt retail firms. Some of the impact is likely to reflect in the March quarter results too. Avenue Supermarts Ltd, which runs the DMart retail chain, has already spoken about the adverse impact of rising coronavirus cases in its Q4 update.

The company saw 6% year-on-year (y-o-y) growth in January-February 2021 for stores that are two years old or older. This metric fell by 9.4% y-o-y in the first fortnight of March mainly because of the restrictions implemented across cities following the surge in cases. Overall, Avenue’s standalone operating revenues increased by 18% y-o-y, it said. This is below the expectations of some analysts.

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As such, investors appear to be factoring in some of these concerns. Shares of Avenue have declined by about 15% from the 52-week high of 3,330 apiece seen on 5 March on the National Stock Exchange (NSE).

Still, valuations remain pricey considering the stock trades at nearly 94 times estimated earnings for FY22, based on Bloomberg data.

The outlook remains uncertain with various restrictions in Maharashtra, a big market for Avenue that accounts for about 35% of the store count. For Q4, apparel firms would also bear the brunt of rising infections, impeding the recovery process. In the December quarter, Trent Ltd, V-Mart Retail Ltd and Aditya Birla Fashion and Retail Ltd (ABFRL) saw their revenues decline y-o-y by 17%, 16% and 20%, respectively.

Commenting on the March quarter, analysts from ICICI Securities Ltd said, “Apparel brands and retail companies under our coverage are likely to report low single-digit revenue growth y-o-y in Q4FY21 despite low base implying 80-85% pre-covid recovery."

“While January-February 2021 likely witnessed improved footfall because of the end of season sale and declining covid cases, it may be impacted again from the second half of March 2021 owing to rising covid cases," the brokerage firm said in a report on 12 April.

“Apparel retailers are expected to report flat y-o-y growth in Q4FY21, with Trent (on the back of Zudio) and V-Mart (non-metro presence) again expected to clock the highest growth," Edelweiss Securities Ltd pointed out.

A relatively higher exposure to Maharashtra and bigger cities would mean revenues of Shoppers Stop Ltd may be hit more.

Analysts expect ABFRL’s revenues to be equal to last year’s March quarter revenues or marginally higher.

Shares of these companies have declined by 11-29% from their respective 52-week highs.

Mobility restrictions imposed because of the rising number of covid cases are likely to impact demand, which in turn would hurt the near-term revenues and profitability of these companies.

Against this backdrop, positive news flow on vaccination would help improve consumer confidence, and investors should watch that closely.

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