Hypermarkets over the counter

Shoppers Stop posted a 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.

“Valuations were cheap a year ago, less than one or half times of sales. But D-Mart’s entry in the public market re-rated the sector, Today, sellers have ability to get reasonable price,” he points out.

Stock market icon RK Damani owned DMart is the most consistently profitable retailer in the country. It listed at 102 per cent premium over its issue price of ~299 apiece on the exchanges in March this year. As a result, he reckons buyers are also expecting better prospects in the future.

This uptick in sales has been reflected in the stock prices of listed retail chains. The value of Future Retail’s stock has shot up four-fold in the last one year; Avenue Supermarts, the parent of D-Mart, has gone up 92 per cent and Shoppers Stop is up by 87 per cent.

But profitability remains an issue. “Only Future Retail, Reliance Retail and D-Mart are doing well (in food and grocery). Others are still figuring out the business model,” says Roy.

Roy predicts that Hypercity will be profitable under Future group principally because the latter has a high share of the fashion retail segment, about 35 per cent in its Big Bazaar stores. Hypercity only had 17 per cent share of fashion. Fashion is a relatively high margin business (35 to 40 per cent, with retailers’ own brands fetching up to 60 per cent). It is something of an exception in the retail business, which mostly operates on wafer thin margins and supply chain challenges, he points out.

Indeed, net margins in the retail business can be as low as two to three per cent and maintaining a country-wide supply chain is a nightmare in India, consultants say.

In contrast, Trent Hypermarket, a joint venture between Trent and UK’s Tesco; Aditya Birla’s More, Spencer’s and others, who set up ventures a decade ago, are yet to post profits. Spencer’s posted a net loss of ~129 crore in FY 2017. Aditya Birla Retail posted a loss of ~650 crore in FY 2016 and Trent Hypermarket posted a net loss of ~44.77 crore in FY 2016.

While More and Spencer’s have made attempts to sell stake in the past, they now seem to be focusing on making the businesses profitable.

“Investors and promoters do not have indefinite gestation period,” says an investment banker requesting anonymity. “Ultimately, they want to see profits and returns on their investments,” he says. The coming year, then, should see some hyperactivity in the organised retail business.