Despite retailers posting impressive numbers in the June quarter (Q1FY23) with sales picking in the first ever quarter since 2020 sans COVID restrictions. Both offline, as well as online (e-commerce) sales of retailers, surged in this quarter. Many also saw their revenue hit all-time highs in the quarter under review.
However, in spite of the impeccable quarter, brokerage house HDFC Securities have 'sell' calls on 2 retailers - TCNS Clothing and Bata India. This comes even after both these firms posted robust earnings in Q1.
TCNS Clothing Company, which houses brands like W, Wishful, Aurelia and Elleven, posted a net profit of ₹2.4 crore in Q1FY23 as against a loss of ₹36 crore in the year-ago period. The loss last year was mainly due to COVID restrictions and weak consumer demand. Its total income came in at ₹283 crore, up 192 percent YoY from ₹97 crore in the same period last year.
The company, in its investor presentation, said that it matched its highest Q1 sales despite the slower recovery in the category. In its conference call, Anant Daga, managing director of the company said, “We believe that with the onset of the festive season and reopening of offices, the ethnic women’s fashion segment should also come back to full normalcy soon. We are excited to see significant sales spikes around regional festive occasions and we see this recovery further building on.”
The stock has gained 6 percent in the last 1 year and is down 24 percent in 2022 YTD. However, since July, the stock has risen around 10 percent.
However, HDFC Securities believes that the quality of earnings of the company is deteriorating. It has a SELL recommendation with a revised target price of ₹510, implying a downside of 14 percent.
"TCNS’ journey to pre-pandemic sales remains underwhelming, partly due to category-specific idiosyncrasies. Q1 was better than expected but lagged peers like Trent/Madura, which clocked 29/14 percent 3-year CAGR. Revenue, at ₹283 crore was just about hit the pre-pandemic sales level. However, offline channels’ performance (esp. their sales densities) remains sub-par, unlike peers. TCNS Clothing seems to have taken refuge in higher GM to partly cushion the impact of increasing channel incentives on profitability," explained the brokerage.
It revises down its FY24/25 EBITDA estimates by 10/9 percent respectively to account for higher sales and distribution expenses.
In the June quarter, Bata India reported a 71.82 percent YoY rise in consolidated net profit at ₹119.37 crore on the "highest ever quarterly sales". The company had posted a net profit of ₹69.47 crore in the April-June quarter a year ago. Its revenue from operations during the quarter under review came in at ₹943.01 crore, up over three-fold from ₹267.04 crore in the pandemic-hit June quarter last year.
"A direct outcome of the continued focus on key thrust areas of franchise & MBO expansion, consumer relevant communication, portfolio casualisation and digital footprint expansion was reflected in the quarterly sales reaching a lifetime high," Bata India said its earnings statement.
This was supported by a continuous increase in portfolio and marketing investments. Moreover, footfalls across retail outlets saw a significant growth besides sales through digital channels, it added.
The stock has jumped 16 percent in the last 1 year and is up 3 percent in 2022 YTD. It had risen 17 percent in July after its June quarter results but is down 1.5 percent in August so far.
However, brokerage house HDFC Securities feels that the June quarter earnings reflected a relatively weak print and fell short on expectations. It has a sell call on the stock with a target price of ₹1,400, implying a downside of 27 percent.
"Bata’s Q1 performance recovers pre-pandemic sales. Alas! It falls short of expectations. On a relative basis too, Bata continues to disappoint. Its three-year CAGR, at 2 percent, falls meaningfully short vs immediate peer Metro’s 18 percent. EBITDA Margin also missed estimate despite a GM beat as normalisation in cost of retailing outpaced sales recovery. The treading the growth-margin equation across Bata’s volume drivers is likely to be tough to execute," stated the brokerage. It also reduced Bata's EPS estimates for FY24/25 by 3/1 percent, respectively.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.