Result preview: Retailers' revenue likely to edge up in weak Q4FY25

Brokerages estimate the consumer discretionary segment to outperform the staples sector

Retail companies are expected to see a modest rise in revenue in the January–March quarter (Q4) of 2024-25 (FY25), which is typically a seasonally weak period.

 

Brokerages estimate the consumer discretionary segment will outperform the staples segment, which is expected to grow in the mid-single digits year-on-year (Y-o-Y), with a low single-digit decline in earnings before interest, tax, depreciation, and amortisation (Ebitda).

 

“We expect 11 per cent aggregate revenue growth in Q4FY25 for our consumer discretionary coverage universe, while Ebitda growth is expected to be lower at 9 per cent, largely on account of margin pressure due to negative leverage on weak same-store sales growth (SSSG),” JM Financial said in its report on the sector.

 

The brokerage highlighted Metro Brands, Sapphire Foods India, and Style Baazar as positive outliers, leading with robust revenue and profit after tax growth.

 

In its pre-quarterly update, Tata Group’s retail arm, Trent, said its standalone revenue for Q4 stood at Rs 4,334 crore, up 28 per cent compared to the same quarter last year. It also said its FY25 revenue stood at Rs 17,624 crore, up 39 per cent from 2023-24. 

 

During the quarter, Trent opened 13 Westside stores and 132 Zudio stores. In Monday’s trade, Trent’s shares closed 14.7 per cent lower after it released its quarterly update over the weekend, settling at Rs 4,745.05 per share on the National Stock Exchange.

 

Elara Capital, in its preview report, said that store expansion is gaining pace and aligns with significant penetration opportunities for Trent’s fashion brands. It also noted that Zudio is expected to expand in North and West India.

 

“Led by seasonality, gross margin may dip 71 basis points (bps) quarter-on-quarter (Q-o-Q) and 129 bps Y-o-Y, and Ebitda margin may slide by 277 bps Q-o-Q (likely up 70 bps Y-o-Y),” the domestic brokerage firm said.

 

On Aditya Birla Fashion and Retail, Kotak Institutional Equities said it has modelled revenue growth of 8 per cent Y-o-Y, driven by 4.3 per cent Y-o-Y growth in Madura, 7 per cent in Pantaloons, 24.1 per cent in ethnic, and the ramp-up of TMRW.

 

The brokerage added, “We expect an Ebitda margin of 9.4 per cent (up 107 bps Y-o-Y). Despite a weak revenue trajectory, we model margin expansion on account of better profitability in Pantaloons (closure of loss-making stores), some margin expansion in Madura, and lower losses in ethnic businesses.”

 

JM Financial also said in its report that it expects Ebitda margins for retail companies to contract due to weak SSSG and aggressive expansion plans.

 

“Ebitda growth is expected to be lower versus revenue growth at 9 per cent (versus 8 per cent in the third quarter), as the margin is expected to decline Y-o-Y on negative leverage,” it said.