Sales in January 2022 and in mid-February 2022 were affected by the onset of the Omicron Covid wave. However, there was a strong recovery in the second half of 4QFY22 on the back of improved footfalls and the easing of restrictions.
While a steady MoM recovery was witnessed, the revenue run-rate in March 2022 remained negative to flattish as compared to the March 2020/March 2021.
Companies with a presence in cities catering to the trading community and small businesses saw some impact from the weak purchasing power and economic challenges.
This is evident from VMART’s soft performance, with a decline in same-store sales. Retailers like Shopper Stop, Lifestyle, West Life Developers in the Apparel category, which cater to the relatively high ASP categories, saw better like-to-like performance.
Despite the continued pressure posed by higher raw material prices (Yarn) on Apparel retailers, gross/EBITDA margin saw a YoY improvement in Q4 as companies raised prices by 5-10% across categories to pass on the increase in input cost.
Aggregate net profit improved as a strong recovery in revenue in the latter part of 4QFY22 allowed mitigating fixed costs.
The impact of the Omicron Covid wave is expected to be short-lived as most retailers reported strong footfall and demand recovery in March 2022. The momentum in-store additions continued despite a minor delay at the beginning of 4QFY22.
Store additions for DMART remained strong, with 21 store additions, reaching 284 stores as of Mar’22. Similarly, WLDL/Zudio added a net 3/56 stores in 4QFY22, reaching 200/233 stores.
While the sector is witnessing a recovery on a MoM basis, aided by improved footfalls, continued increase in raw material prices and inflationary pressure may impact demand going forward.
Here are two investment ideas for the next 12 months. Upside calculated based on 17 June LTP:
Aditya Birla Fashion: Buy| LTP Rs 230| Target Rs 350| Upside 52%
Aditya Birla Fashion’s robust execution capability is reflected in its ability to scale up a series of strong brands during the last 10 years with healthy growth.
Ethnic Wear turning EBITDA positive along with continued momentum in other businesses, including Innerwear, remains the key positive.
With healthy recovery and growth momentum across verticals, we modeling a strong revenue/EBITDA CAGR of 30%/40% over FY22-24E.
The recent announcement of Rs 22 billion preferential issue to
should further reduce its leverage position of Rs 5 billion and fuel growth in a wide array of new categories.
Trent: Buy| LTP Rs 1,043| Target Rs 1,430| Upside 37%
Trent’s successful store performance, healthy store economics, and aggressive growth strategy offer a huge runway for growth over the next three-to-five years, as the company targets 25% annual revenue growth.
Emerging categories such as beauty and personal care, innerwear and home continued to gain traction with customers. We expect 37% revenue growth over FY22-24, which warrants a premium valuation for the stock.
(The author is Head – Retail Research, Limited)