Sector Update - Retail - ICICI Direct

Marred by store closures and several lockdown restrictions, the retail sector was among the worst hit in CY20. After a washout in Q1FY21, gradual opening of stores and surge in pent up demand translated into a sustained improvement in recovery rates. The revenue recovery trajectory improved from a mere 25% in July to ~70% in October. Online/e-commerce sales were the key catalyst in revenue recovery (~1.5x of pre-Covid sales) wherein share to overall sales has more than doubled (earlier ~5%). As per our channel checks, festive season demand has been healthy and the momentum continued to sustain for entire Q3FY21. The management's stance of normalisation by Q4FY21, Q1FY22E seems to be on track but probable re-imposition of lockdown restrictions may pose near term challenges. We remain structurally positive on the long term growth story of the retail space but a sharp run-up in stock prices factors in the near term green shoots for most retail stocks.

Outlook

The Indian retail market is poised to grow at a CAGR of 10% to cross the US$1 trillion mark by CY26. Companies with healthy balance sheets and strong brand patronage are likely to capture market share from unorganised players. In our retail coverage universe, we expect overall revenues to decline 16% in FY21E with Avenue Supermarts, Relaxo, Page, TTK Prestige and Titan registering comparatively lower decline in revenues. Fashion retailers are expected to report revenue decline of 35-45% in FY21E. For FY20-23, we expect overall revenues to grow at a CAGR of 15%. Companies have revisited their cost structures post the pandemic and have targeted certain cost savings to be structural in nature. This would translate into better margin profile for retail players. Hence, we pencil in earnings CAGR of 21% in FY20-23E. Store addition momentum is expected to pick up pace from H2FY21 onwards with equivalent focus sustaining in digital space.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Retail_SectorUpdate_Dec20.pdf

Source : Equity Bulls

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