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ICICI Direct Report
Retail sector recorded a healthy performance in Q2 FY23 on the back of a strong recovery in footfalls (surpassing pre-Covid levels) and pre-festive buying. Q3 FY23 also started on a steady note with companies witnessing strong demand offtake during the festive season (Navratri-Diwali).
However, demand momentum started waning off during November and December. Certain apparel retailers preponed their end of season sales by ~15 days during mid-December.
We expect retail companies in our coverage universe to register double digit revenue growth in Q3 FY23. Trent Ltd. and Reliance Retail Ventures Ltd. are expected to be the fastest growing retailers with three-year compound annual growth rate of 25% plus.
With softening of key raw material prices, we expect companies to undertake price cuts of 3-5% on a sequential basis (but remain elevated YoY). Ebitda margins are expected to remain under pressure mainly due to higher operating expenses on the back of new store opening and investments in marketing spends. Hence, anticipate Ebitda margins to decline 140 bps YoY to 12.9%.
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