Q3 EARNINGS: LOW BASE ADVANTAGE FOR RETAILERS
Four major retailers are expected to post an average of 15.4 per cent annual growth in net sales for the quarter ended December, besides a 41.6 per cent rise in Ebitda (earnings before interest, tax, depreciation and amortisation).
Their earnings for the quarter have the advantage of a favourable base, as the quarter a year before saw a hit due to demonetisation. Though the quarter was impacted by an early onset of the festive season (in the September quarter), there was a pick-up in sales in November, owing to the wedding season. A dip in demand in early December was offset by an early end of season sale (EOSS) starting December 22.
“We expect the accelerating shift to the formal economy post GST (goods and services tax) to bode well for the retail sector,” said domestic brokerage Emkay in a preview report. “We maintain our positive stance on the sector, underpinned by rising urban consumption and expectation of an improving consumer sentiment.”
The highest valued is Avenue Supermarts (D-Mart). It is expected to have a seasonally strong quarter, with sequential revenue growth expectation of 21 per cent, aided by festive season demand for food and general merchandise products. “We expect steady post-GST gross margins of 16 per cent and higher revenue throughput to drive 40 basis points sequential Ebitda margin expansion,” said Kotak Securities in its earning preview for the company.
On an annual basis, the company is expected to record a nearly 28 per cent rise in net sales and 80 basis points annual Ebitda expansion.
Future Retail is expected to have 10 per cent annual samestore-sales-growth (SSSG) in the December quarter, aided by Big Bazaar (75-78 per cent of revenue) and Easy Day (10-14 per cent of revenue). Heritage stores will further boost revenue. However, demerger from Home Retail (revenue contribution from Hometown) will offset for any increase in revenue from Heritage.
“With Easy Day expected to break-even in the second half and double digit SSSG in Big Bazaar, we estimate the Ebitda margin to expand 130 bps in the third quarter,” said Abneesh Roy, analyst at Edelweiss Securities, in his earnings preview.
Another Mumbai-based retailer, Shoppers Stop, is expected to record SSSG at six per cent and standalone revenue at ~10.7 billion, up six per cent year on year, says Emkay Securities. “Improved share of private and exclusive brands is expected to boost Ebitda margins by 10 basis points to 6.9 per cent,” said the brokerage in its earnings preview report. Subsequently, it expects Ebitda to report growth of 8 per cent over a year, at ~741 mn.
For Aditya Birla Fashion and Retail (ABFRL), Emkay expects overall revenue to grow by 17 per cent year on year, on the back of 16 per cent growth in Madura and 18 per cent growth in the Pantaloons (eight per cent SSSG) business. “We expect overall Ebitda margins to expand by 210 bps to 7.2 per cent, on the back of operating leverage,” said Emkay in its preview. Ebitda is expected to grow by 65 per cent to ~1.4 bn.