Home / Markets / Mark To Market /  Retailers may see sequential recovery in Sep quarter, but pace remains slow

With incomes hit and the need for dressing-up reduced due to the pandemic, the retail sector is bruised. That said, after a painful June quarter, the September quarter should bring some respite.

While demand for essential products was encouraging, sale of non-essential and high-ticket items are taking longer to recover post-lockdown, said analysts. This means apparel retailers are impacted more. On the other hand, a good portion of revenues from essential items offers a cushion to Avenue Supermarts Ltd, which runs the DMart chain of retail stores. During the June quarter, Avenue’s revenues had dropped by nearly 34% year-on-year. When it announces the September quarter results on Saturday, investors can expect to see a noticeable improvement.

In a report on 9 October, JM Financial Institutional Securities Ltd’s analysts wrote: “Consumer spends overall, however, are still under pressure, which will also reflect in Avenue Supermarts where we forecast revenue growth of mere 1% (led by new stores roll outs) versus 20%+ growth rates prior to the lockdown." The brokerage firm added: “This is also due to social distancing norms impacting crowds at stores."

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To be sure, some analysts estimate Avenue’s September quarter revenues to drop, of course, at a slower rate than the June quarter. On the profitability front, Avenue had seen a massive 750 basis point year-on-year decline in its June quarter Ebitda (earnings before interest, tax, depreciation and amortization) margin. One basis point is 0.01%. Its Ebitda margin should substantially improve in the September quarter.

Meanwhile, as mentioned earlier, apparel retailers will be hit more. IDBI Capital Markets and Securities Ltd analysts said: “In the apparel sector, revenue decline will be steep at 40-48% year-on-year (versus 87-88% year-on-year decline in Q1FY21)." They added in a report on 6 October: “However, we expect business recovery of private label retailers, such as Trent Ltd, to be stronger due to disruptive/value pricing and diversified product portfolio (higher exposure to daily wear products) compared to branded companies, which operates at high price and narrow product basket."

On the other hand, Titan Co. Ltd is expected to witness a relatively better recovery within retailers engaged in discretionary products.

Edelweiss Securities Ltd expects Titan’s revenue to dip around 3% year-on-year, owing to a sharp recovery in jewellery, raw gold sales ( 390 crore), and about 40% year-on-year spike in gold price. The watch segment though could take much longer to recover. Even so, jewellery remains a key earnings driver for Titan. The segment had contributed as much as 83% of FY20 revenues, while the watches business accounted for 13%.

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