Beating GST: Retailers surprise with huge y-o-y growth

Future Retail reported Rs 153 crore net profit for the quarter, 108% year-on-year growth

Though the goods and services tax (GST) muted retailers’ revenue growth in the September quarter, some were able to improve profitability.The implementation of the new tax regime prompted many retailers to prepone end of season sales to June to liquidate inventory. This meant muted revenue growth for September quarter.

Kishore Biyani-promoted Future Retail reported Rs 153 crore net profit for the quarter, 108 per cent year-on-year growth, despite sales recording single-digit growth of 7.5 per cent to Rs 4,506 crore. Profit growing faster than revenue helped the company report 153 basis points improvement in its PBIDTM (profit before interest, depreciation, tax margin), a yardstick for operating profit margin. What helped improve revenues was same store sales growth of 10.2 per cent, with Big Bazaar’s same store sales growth hitting a 5-quarter high.

“Margins made a new high of 4.7 per cent, driven by higher apparel sales and a better format mix. There was a two-day reduction in inventory days, given successful optimisation measures,” said Himanshu Nayyar, analyst with domestic brokerage Systematix Shares & Stocks.

Radhakishan Damani-promoted Avenue Supermarts, which operates retail chain D-Mart, reported 65 per cent annual net profit growth to Rs 191 crore in the quarter, despite revenue growing at a slower pace of 26 per cent to Rs 3,508 crore. While the company did not disclose same store sales growth, analysts estimate this to be mid to high teens. The company recorded a near 100 basis points improvement in its PBIDTM to 9.7 per cent.

Latika Chopra, analyst with foreign brokerage J P Morgan, attributed the company’s margin improvement to “better product mix”. “This year, the festive season started earlier, and that usually helps the product mix,” Chopra said in her note following the results.

The company also reported higher profit because of lower interest costs. Out of the Rs 1,870 crore raised by the company through its initial public offering this year, Rs 863 crore was used for part payment of its debt. This eventually brought down interest cost and boosted profitability. 

Tata group-promoted Trent, which owns Westside and Landmark stores, reported 37.7 per cent annual growth in net profit to Rs 29 crore in the quarter, despite revenue growing at a slower pace of 18.8 per cent to Rs 522 crore. This helped the company show 72.6 basis points growth in its PBIDTM to 11.7 per cent.

Bharat Chhoda, analyst with ICICI Securities, attributed improvement in the company’s operating profitability margin to controlled operating expenses. “Rent and other expenses as a per cent to sales stood at 12.3 per cent and 20.4 per cent, respectively, versus 13.1 per cent and 23.6 per cent,” he said.  

However, Aditya Birla Fashion and Shoppers Stop showed declining revenue and profitability with respective net loss of Rs 10 crore and Rs 22 crore. Their PBIDTM respectively shrunk by 367 basis points and 307 basis points.

Aditya Birla Fashion, which owns Pantaloons, is in expansion mode and has added 30 stores in the quarter, affecting its profitability margins.