Retail Sector Check - Retailers Witnessing Subdued Demand: Motilal Oswal

Motilal Oswal Report

Our retail coverage companies have corrected 15-40% from their respective 52-week highs, barring Trent/DMart. However, we still expect subdued demand recovery in the apparel space. Valuations of retail companies are determined by growth visibility and disciplined capital allocation.

We prefer Trent/ DMart/Metro Brands Ltd. (Buy), given the ability to deliver higher growth compared to peers. Additionally, we like Raymonds Ltd., which could benefit from the demerger of its real estate and lifestyle business.

We maintain our Neutral rating on both V-Mart Retail Ltd. and Manyavar, due to a slowdown in performance. However, recovery in same-store sales growth would act as a positive catalyst for the stocks.

Historically, Shoppers Stop Ltd. has experienced modest growth, resulting in a lower valuation compared to peers. However, its recent foray into the value segment with the introduction of ‘Intune’ could potentially lead to higher productivity, which enables healthy store profitability. The aggressive store expansion plan, coupled with higher productivity, could serve as a key lever for growth and lead to a re-rating of the company going forward.

Conversely, Aditya Birla Fashion and Retail Ltd., following a string of aggressive investments over the past three years, is facing challenges in terms of Ebitda and profit after tax growth. The company has invested in multiple new businesses that are presently loss making or are yet to stabilize. We believe that in the short term, Aditya Birla Fashion may experience earnings volatility due to these aggressive investments.

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