After declining for two consecutive months, the Indian market has risen around 1 percent in February so far. In comparison, it fell 2.4 percent in January and 3.5 percent in December.
Now that the Union Budget and the RBI policy are in and the Q3 earnings season is coming to an end, the global cues would play an important role in the near-term direction of the market.
The market is likely to remain range-bound in the first half of 2023 as the positives could get nullified by global uncertainties and FPI selling, said Gaurav Dua, SVP Head of Capital Market Strategy at Sharekhan by BNP Paribas.
However, the Indian equity market is likely to perform well over the medium to long term on account of its robust economic outlook.
Let's take a look at the 2 retail stocks that got a 'sell' rating from HDFC Securities:
Relaxo Footwears: The brokerage has a ‘sell’ call on the stock with a target price of ₹700, indicating a downside of 11 percent.
"Relaxo remains a strong category leader; well-poised to gain market share within an immature ecosystem. However, the uncertainty around consumer demand doesn’t quite backstop its lofty valuation (53x Dec-24 P/E/34x Dec-24 EV/EBITDA). While the one-year 40 percent price correction certainly makes the valuation more palatable, it is still not enough for us to get constructive on the stock," explained the brokerage.
The leading footwear manufacturer reported weak earnings for the December quarter due to subdued demand. Relaxo Footwears reported a 57 percent slump in profit after tax (PAT) at ₹30 crore in the December quarter from ₹70 crore in the year-ago period. Its revenues dropped 8 percent to ₹681 crore as against ₹744 crore in the year-ago period.
The footwear company attributed the lower revenues to "subdued demand in mass segment articles and higher volume or value base in the corresponding quarter in the fiscal year 2022 due to change in GST rate with effect from January 1, 2022".
Relaxo Footwears' EBITDA plunged 41 percent to ₹72 crore as against ₹122 crore in the same quarter of the preceding fiscal. Also, the EBITDA margin dropped to 10.6 percent against 16.4 percent in the corresponding quarter.
The company management said that the market environment remains competitive and challenging. It has made price corrections to counter the same and while it has started seeing the effect of the same on volumes, its full effect will come into play from the March quarter onwards.
The brokerage noted that Relaxo's volume/net realisation growth stood at -9/1 percent, respectively, - a function of (1) higher skew of closed footwear in the mix; (2) soft demand. Profitability remains sub-optimal vs pre-pandemic levels, courtesy of high RM inflation in key inputs and higher expenses, it added. Price correction of 15-20 percent in Q2 has begun to spur some demand. It has also cut its estimates by 5 percent each for FY24/25 to account for lower profitability.
In the last 1 year, the stock fell 40 percent. Just in Feb so far, it shed 4 percent, extending losses for the fifth straight month. Since October, the stock has declined 22 percent.
The brokerage has a 'sell' call on the stock with a target price of ₹460, implying a downside of 31 percent.
"The company's scale recovery and aggressive focus on store expansion and assortment management are certainly encouraging. However, long-term risks of business relevance/longevity remain as the company directly contends with deep-pocketed e-tailers. Hence, while we revise our FY24/25 EBITDA estimates upwards by 11/9 percent respectively to account for higher productivity, we maintain our SELL recommendation," explained HDFC.
In Q3, the firm reported an 18.86 percent decline in consolidated net profit at ₹62.74 crore versus ₹77.32 crore in the same period last fiscal. Its consolidated revenue from operations during the quarter under review rose over 18 percent to ₹1,137.07 crore as against ₹958.11 crore in the same period a year ago.
Total expenses in the third quarter were higher at ₹1,075.66 crore as compared to ₹905.14 crore in the corresponding period of the previous year.
"The growth momentum continued from the second quarter, tapering down a little after Diwali. Customer sentiments remain largely buoyant due to the prolonged festive and wedding season demand," Shoppers Stop Managing Director and CEO Venu Nair said.
The brokerage noted that while bill cuts/stores are normalising, they are yet to catch up to pre-pandemic levels. Growth remains realisation-heavy and store openings remained healthy and momentum is likely to continue. Gross margin was largely flat despite an improving mix towards private labels at 40.9 percent, stated the brokerage. It revised FY24/45 EBITDA estimates upwards by 11/9 percent each to account for (1) higher store additions; (2) a higher private label portfolio; and (3) improved sales density-led profitability.
The stock has gained 89 percent in the last 1 year. However, it is up just 1.5 percent in Feb so far after a 7 percent decline in January.
