Retail stocks land knockout punch on heavyweights

The BS Retail Index has risen 167.3% since the beginning of the current year, the highest among sectoral indices

Stocks of retail companies such as Future Retail, Avenue Supermarts, and Shoppers Stop have emerged as the top performers on the stock exchanges this year.

The BS Retail Index has risen 167.3 per cent since the beginning of the current year, the highest among sectoral indices. 

The BSE Realty Index is the second-best performer, with an increase of 71.3 per cent year-to-date (YTD), the data compiled by the Business Standard Research Bureau shows.

The BS Retail index is an index of five companies operating in the retail sector. It is computed using the weighted average of full-market capitalisation and includes companies that account for 80 per cent of total market cap of the retail sector during the start date (December 31, 2016). The five companies include Future Retail (around 40 per cent weight in the index), Trent, Future Lifestyle, Shoppers Stop, and V-Mart. The index doesn’t include Avenue Supermarts, as it listed only in March this year. Avenue Supermarts has seen its share price nearly quadruple over its  initial public offering (IPO) price. The broader indices such as S&P BSE 500 and S&P BSE Sensex have risen 28.3 per cent and 21.7 per cent, respectively, YTD.

Among larger retail stocks, Future Retail has risen 306 per cent since the beginning of the year, while Shoppers Stop is up 89 per cent, and Avenue Supermarts (parent of D-Mart) is up 291 per cent from its IPO price of Rs 299. 

Others like Future Retail, V2 Retail, and V-Mart are up 200-370 per cent. 

The retail stocks have beaten consumer heavyweights such as Hindustan Unilever (up 53 per cent), Britannia (up 61 per cent), ITC (up 12.5 per cent), among others, this year.

“The entry of D-Mart on stock exchanges is a big reason for this performance. Besides, retailers have been posting good numbers, which are reflected in their performance,” said Abneesh Roy, senior vice-president, Edelweiss Securities. 

 

Roy said the goods and services tax, demonetisation, and the recent consolidation in retail had helped stocks of retail companies. 

While Future Retail has been buying retail firms — it recently bought HyperCity — as part of its consolidation strategy, Raheja-owned Shoppers Stop has been selling its loss-making ventures. 

Avenue Supermarts-owned D Mart is the most consistently profitable retailer in the country and was listed at a 102 per cent premium over its issue price of Rs 299 apiece on the exchanges in March this year. It is up 82 per cent from the closing price of its listing day.

Roy said the fact of the overall markets remaining strong and robust mutual fund inflows had helped retail stocks.

Himanshu Nayyar, research analyst at Systematix Shares and Stocks, said that retailers had got the business model, format, merchandise mix and other factors right after many years of experimentation.

They have finalised their strategy after experimenting for many years. For instance, Future Retail is focusing on clusters such as food and grocery, fashion, home, and durables. 

Nayyar said the change was visible now. Same-store sales growth at the top retailers was roughly 16.2 per cent during the first quarter of this financial year (FY18), one of the best performances in the last several quarters. 

Shoppers Stop posted 19.8 per cent same-store sales growth during the quarter, while Future Retail’s Big Bazaar posted 15.9 per cent, one of the best for the chain. 

“In the next couple of years, retailers can give better top line and bottom line growth than other sectors, leave alone consumer goods companies. No other sector can give 20-25 per cent returns,” Nayyar said.