Avenue Supermarts, Titan to shine in Q2

Sales growth for most retail players expected to moderate on sequential basis due to weak demand, higher base

While Avenue Supermarts (Dmart) is expected to report strong revenue growth when it declares its results on Saturday, most retail companies are expected to turn in subdued performance for the September quarter (Q2). Weak demand and shift of the end of the season sale to the June quarter (Q1) are reasons for this, believe analysts. IIFL Institutional Equities analysts led by Avi Mehta expect sales growth to moderate across retail firms given weak demand after the implementation of the goods and services tax (GST). Among retail firms, they expect Shoppers Stop to post a two per cent fall in same store sales (SSS) growth due to muted demand after GST and lack of contribution from end of season sales. Due to the GST rollout in July, retailers had advanced their end of season sales to June, resulting in slack demand in July and August. 

Early end of season sales, coupled with lower footfalls at malls, is expected to impact quick services restaurants, say analysts at Edelweiss Securities. SSS growth for Jubilant FoodWorks is expected to come down by 150 basis points (bps) to five per cent over Q1, while those for Westlife is down by 200 bps to seven per cent, due to unfavourable base and demand weakness on a sequential basis, say IIFL analysts.  The two companies are expected to achieve growth of 8-13 per cent on a year-on-year (y-o-y) basis. 

Among the outperformers in the retail space are Dmart and Titan Industries, which are expected to report sales growth of 35 per cent and 24 per cent, respectively. For Titan, the growth in revenues will be led by 25 per cent growth in wedding jewellery, while the watch segment is expected to grow by 10 per cent. The company will continue to gain market share given the GST roll-out and shift to the organised segment. Sales growth for Dmart is expected to be strong, replicating its 35-40 per cent sales growth performance in the December and March quarters. Given the 54 per cent exposure to the foods segment and attractive pricing, Dmart continues to outperform its retail peers. Aided by 12 per cent SSS, Future Retail is expected to post 15 per cent y-o-y revenue growth. Sequential growth for the company which owns Big Bazaar, fbb and Easyday is expected to be 2.4 per cent. Lower promotions and better sales mix are expected to keep margins steady for most of the players in the retail segment. 

Going ahead, analysts believe an early festival season in September and healthy sales will continue into the December quarter, translating into a robust show. While growth is expected to pick up, given the re-rating, most of the retail stocks are currently priced at 40-50 times FY19 earnings estimates with Dmart available at 71 times. Investors should await steady and consistent growth from the retail players and a correction before taking an exposure.