The retail sector is expected to post subdued fourth-quarter earnings due to the extended slowdown, elevated dairy inflation and continued growth investments. This should drive a sectoral downgrade, said a report from brokerage firm Emkay Global Financial Services.
The brokerage firm expects the challenges to persist in the first half of the current financial year (H1FY24) before a growth turnaround is seen in the second half (H2FY24).
Emkay said while it retains confidence in the structural growth drivers for organised retailers, low near-term growth visibility and gold-price volatility drive a 7-11 percent earnings cut and rating downgrade to 'hold' on Titan, Page Industries, Aditya Birla Fashion and Retail, Devyani International and Sapphire Foods.
"Our target price multiples for these names also stand reduced, by 4-16 percent, as we expect reversion towards the mean in a weak-demand scenario. We stay watchful about any early signs of demand revival and will revise our ratings accordingly," said Emkay.
On the other hand, the brokerage firm has upgraded its rating on Varun Beverages and Westlife Foodworld to "buy" due to strong execution in challenging circumstances and softening in prices of key raw materials (PET resin, Palm oil). Also, it said it still favours Ethos and Go Fashion, on relatively better growth visibility.
In the QSR (quick service restaurant) space, due to continued traction in meal dayparts (gourmet/fried chicken) and in the delivery channel, Emkay expects Westlife Foodworld to report low double-digit SSG (same-store sales growth) in Q4 versus flat-to-negative SSG for Jubilant FoodWorks, Devyani International and Sapphire Foods.
Westlife Foodworld is also relatively better-placed on the margin front, as palm oil (key RM) price has corrected by nearly 35 percent which should drive continued outperformance for the company, Emkay pointed out.
The brokerage firm added while topline growth will be healthy for Devyani International and Sapphire Foods, at 17-26 percent in Q4, weak SSG and continued expansion will lead to a lacklustre bottom-line performance.
"We downgrade our rating for Devyani and Sapphire to ‘hold’, due to potential SSG declines till H1FY24. While the base remains favourable for Jubilant in terms of both, SSG and margins in FY24, we await signs of improvement and maintain our ‘hold’ rating on the stock," said Emkay.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
