Q4FY2011 Retail earnings preview - Sharekhan Special

- The demand environment for the retail industry in Jan-March quarter continued to be benign, with players expected to post lower double digit same store sales growth (ranging between 10-12%).

- Escalating input prices across the board are likely to impact gross margins, resulting in margin contraction. In certain cases, the continued leverage benefit and product and sales mix premiumisation would aid in margin expansion, case in point being Shoppers' Stop (Shoppers'), Provogue India (Provogue) and Titan Industries.

- Aided by strong earnings growth from Titan Industries, Jubilant Foodworks and Provogue, the Sharekhan retail universe is expected to witness a 19.1% earnings growth for the quarter. From the quarterly perspective, Kewal Kiran Clothing Ltd (KKCL) would witness a small earnings deceleration.

- Though a minor hiccup in margins & profitability for Q1FY2012 cannot be ruled out, looking at the mid to long term trend and optimism across consumption categories, we believe that all consumption play are at an inflexion point, with the long term demand drivers intact. Thus we continue to maintain our long-term bullish stance on the sector. From the large cap, valuation-wise, we like Pantaloon Retail, while we continue to have our Buy rating on Provogue (proxy to retail real estate play) and KKCL.

Source : Equity Bulls

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