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Sales were impacted by the start of the Omicron Covid wave in January 2022 and mid-February 2022. However, there was a strong recovery in the second half of 4QFY22 due to better footfalls and easing of restrictions.
While a steady MoM recovery was observed, the revenue run-rate remained negative in March 2022 as compared to March 2020/March 2021.
Companies with a presence in the business community and cities that cater to small businesses saw some impact from weak purchasing power and economic challenges.
This is evidenced by VMART’s soft performance with declining same-store sales. In the apparel category, retailers such as Shopper Stop, Lifestyle, West Life Developers, which cater to relatively higher ASP categories, saw better similar performance.
Despite continued pressure from higher raw material (yarn) prices on apparel retailers, Gross/EBITDA margins saw a year-on-year improvement in Q4 as companies cut prices across categories to pass on the increase in input costs. increased by 5-10%.
Overall net profit improved in the form of a strong recovery in revenue in the latter half of 4QFY22 driven by lower fixed costs.
The impact of the Omicron COVID wave is expected to be short-lived as most retailers reported strong footfalls and recovery in demand in March 2022. The momentum continued to increase despite a slight delay in the start of 4QFY22.
The store addition for DMART remained strong with 21 store additions, reaching 284 stores as of March 22. Similarly, WLDL/Zudio added a net 3/56 stores in 4QFY22, reaching 200/233 stores.
While the sector is witnessing improvement on MoM basis, better footfall, sustained rise in raw material prices and inflationary pressures could impact demand going forward.
Here are two investment ideas for the next 12 months. Calculation of upside based on June 17 LTP:
Aditya Birla Fashion: Buy| LTP Rs 230| Target Rs 350. up 52%
Aditya Birla Fashion’s strong execution capability is reflected in its ability to grow a range of strong brands with healthy growth during the last 10 years.
Ethnic wear turned EBITDA positive and continued momentum in other businesses, including innerwear, continues to be a major positive.
With healthy recovery and growth momentum across all verticals, we are modeling a strong Revenue / EBITDA CAGR of 30% / 40% as compared to FY22-24E.
Recently announced preferential issue of Rs 22 billion
The leverage position of Rs 5 billion and a wide range of new ranges should further reduce fuel growth.
Trent: Buy| LTP Rs 1,043. Target Rs 1,430| up 37%
Trent’s successful store performance, healthy store economics and aggressive growth strategy provide a huge runway for growth over the next three to five years, as the company targets 25% annual revenue growth.
Emerging categories like beauty and personal care, innerwear and home continued to gain traction with customers. We expect 37% revenue growth in fiscal 2012-24, which guarantees a premium valuation for the stock.
(The writer is Head Retail Research Ltd.)
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