Retail ƒ Revenue growth to remain moderate… ƒ :Q3FY15 Result Preview : ICICI Securities, report

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Construction, Ports, Real Estate & Retail 3QFY15E Results Preview ::HDFC Securities

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Consumer Products: Baking in RM tailwinds :: Kotak Sec, report link

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Baking in RM tailwinds. We have upgraded our EPS estimates by ~2-14% for most
companies under KIE consumer universe (barring JUBI, SRL and ITC) as we bake in
benefits from input costs correction adjusted for (1) currency depreciation, (2) higher
A&SP spends and (3) lower price-led growth. Resurgence of unorganized competition
also remains a risk to volumes. RM tailwinds and roll-over to December 2016E (from
September 2016E) drive a ~3-17% upgrade in our target prices; upgrade HUVR to ADD
(from REDUCE) and downgrade PIDI a notch to ADD (from BUY).

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Consumption Recovery Yet to Materialise ::Edelweiss, link

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Consumer Products: Pernod India's annual report, 2014 - another good year Energy: Here to stay :Kotak Sec,link

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Pernod India’s annual report, 2014—another good year. Pernod India (PI) reported
a good year with gross sales, EBITDA and PAT growing by 19%, 25% and 18%,
respectively. Post-tax RoCE was 129%. As per our estimates, EBITDA margins increased
by ~130 bps yoy, in a year in which margins for rest of the industry were under
pressure due to RM inflation and subdued volumes. Cash flows were robust; FCF to PAT
conversion was 70% in FY2014. PI’s consistent outperformance implies that even in a
consumer-oriented business, heavily regulated by the government, companies that
focus on building strong brands do well in short/long term.

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Retail - 80:20 Scrapped: Acche Din for Jewellers? :: Edelweiss, link

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Retail - Improvement in Consumer Confidence Eludes QSRs :: Edelweiss PDF link

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Yum! Brands, which operates Pizza Hut (386 stores), KFC (345 stores) and Taco Bell (5 stores) in India, registered 4% YoY decline in same store sales (SSG) in Q3CY14 on a base of flat growth in Q3CY13 (Q2CY14 SSG had dipped 2% YoY on a base of 2% YoY growth). Promotional intensity however, remained high in Q3CY14, particularly in pizzas. Here we highlight that though the Nielsen Consumer Confidence Index stood higher at 128 points in Q2CY14 (highest in past 13 quarters), the same has yet to reflect in better volumes for the quick service restaurants (QSRs) which are witnessing heightened competition. We expect Jubilant Foodworks’ (JFL) SSG to remain under pressure over the medium term (SSG of Domino’s is likely to dip by 3% YoY in Q2FY15 on a base of 6.6% YoY growth) but expect it to gradually recover in FY16. JFL has been seeding growth drivers to tap such potential recovery through higher expansion (addition of new stores in FY14 moved up by 26% and will further improve by 20% in FY15).

Yum! Brands’ remains steady; operating loss continues

Yum! Brands’ India division sales grew 14% YoY in Q3CY14 with 26% YoY rise in the number of stores. Yum! added 18 Pizza Hut and 4 KFC outlets in Q3CY14. Operating loss in Q3CY14 stood at USD3mn versus operating loss of USD4mn in Q3CY13.

Heightened focus on delivery by Pizza Hut worries Domino’s

Yum! has been focusing on increasing its presence in the pizza home delivery segment, which has been JFL’s forte. The number of home service stores (delivery) for Yum! spurted 55% YoY in Q3CY14, which indicates the company’s increased aggression in the delivery space (seen in one-on-one offer and 30 minutes delivery promise). In Q2CY14 as well, there was a 44% YoY surge in the number of delivery stores of Yum!. This could pose a threat to JFL’s market share in the pizza delivery space.

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Reliance Retail - Good performance in a challenging macro in FY14; turns PAT positive: JPMorgan

India Retail Reliance Retail - Good performance in a challenging macro in FY14; turns PAT positive

Reliance Retail (a subsidiary of RIL, which is covered by Samuel Lee and Neil Gupte) has significantly stepped up the pace of store operations across various segments over the past few years and now operates 11.7mn sq ft of retail space. It has emerged as the largest retail chain in the country and is now closing in on Future Retail in terms of revenue (for comparable value formats). Below are key highlights of the company’s performance in Q4FY14 and FY14.

· Aggressive store expansion. Reliance Retail added 225 stores over FY14 taking total store count to 1691. Total space as of FY14 end was 11.7mn sqft (+2.7mn sqft y/y) across 146 cities (+17 y/y). Electronics segment witnessed highest store additions followed by fashion & lifestyle segment. Store additions for the jewellery format were quite low at three only. Retail space concentration was broadly same as last year with South accounting for the highest share at 38% followed by West (34%), North (20%) and East (8%). The company launched a new format – ‘Digital Express Mini’ – smaller sized stores offering mobility and communication products and solutions and easier to scale up in smaller towns.

Reliance Retail – Revenue mix for FY14 Source: Company

Reliance Retail – Format wise store count and total space Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Value Format 760 769 774 708 718 Digital 139 151 180 212 284 Fashion and Lifestyle 448 455 471 508 533 Jewellery 51 54 54 54 54 Brands 68 82 90 95 102 Total store count 1,466 1,511 1,569 1,577 1,691 Total retail space (mn sq ft) 9.0 9.4 10.0 10.7 11.7 Source: Company

· Mixed SSSG trends in a challenging macro. Reliance Retail posted 9% SSSG for FY14 for the value format (vs 18% in FY13 and 11% in 9MFY14) indicating moderation. Fashion & Lifestyle segment however posted 20% SSSG for FY14 (vs 8% in FY13 and 20% in 9MFY14). Jewelley segment continues to face demand and regulatory challenges (-ve SSSG in 1HFY14).

Reliance Retail – Format wise LFL growth

	FY13	Q1FY14	1HFY14	9MFY14	FY14
Value Format	18%	17%	12%	11%	9%
Digital	17%	17%	13%	10%	NA
Fashion and Lifestyle	8%	22%	22%	20%+	20%+
Jewellery	7%	20%	Negative	NA	NA
Brands	12%	10%	1%	NA	NA

Source: Company

· Focus on profitability remains – turns PAT positive. After breaking even for the first time at EBITDA level in FY13, Reliance Retail turned PAT positive (Rs1.8bn) in FY14 led by strong sales growth (+34% y/y) and gradual improvement in EBITDA margins (2.5% in FY14 vs 0.7% in FY13) and some one-off gains.

Reliance Retail – Annual and quarterly financials (Rs mn, %)

	FY12	FY13	Q1FY14	Q2FY14	Q3FY14	Q4FY14	FY14
Revenue	75,990	108,000	34,740	34,560	39,270	36,390	144,960
% growth		42%	53%	31%	38%	19%	34%
EBITDA	-3,420	780	700	950	1,060	920	3,630
% margin	NM	0.7%	2.0%	2.7%	2.7%	2.5%	2.5%

Source: Company

· Establishing leadership in cash and carry format. Within two years of launch, Reliance Retail has opened 32 wholesale Cash & Carry outlets, 15 of these stores were added in Q4FY14 alone. This format has 1.2mn member partners. Focus remains on developing own brands for all customer segments.

· Private Label share trends. Own brands portfolio contribute ~66% of apparel sales (9MFY14). Private Labels contribute up to 23% in key categories such as staples and dairy. In digital (electronics) too, penetration of private labels is increasing steadily and there is upto 18% penetration for several CDIT product categories.

-- 

India Consumer “Short term blip to provide entry in long term opportunity" :: Prabhudas Lilladher

FMCG – Remains a safe haven despite slower growth
• CNX FMCG Index outperformed NIFTY by 22% in the past 12 months and 5% in one month, as flight to safety
continues amidst negative news flows from interest rate sensitive's
• Durable demand slows down: Discretionary segments showing lower demand; Cars sales have declined by
6.7% in FY13 (6% growth in FY12); two wheeler sales up by 3% in FY13 (12% in FY12); durables sales growth
has also slowed down
• Staples demand: volume growth has slowed down, more so in discretionary segments like processed foods
and premium personal care
• Jewellery and accessories: lower growth led by pressure on consumer wallet, decline in Gold prices like to
boost the jewellery demand
• Rural Demand: Medium-term outlook in rural demand remains strong led by higher agri prices and 46%
increase in allocation for rural spending (Rs800b) in run upto elections
• Input Costs: Input costs favourable for PFAD, Tio2 and copra; sugar and wheat prices are off their highs.
• Competition: Competitive activity is rising as HUL and Reckitt have been engaged in ad wars. Segments like
detergents, soaps, oral care and skin care are witnessing higher advertising and sales promotion
• Food Services: QSRs likely to remain under pressure in the near term; Service tax to impact sales in times of
tighter consumer wallet
• Positively inclined towards companies with strong pricing power or with benign input costs
• Large Cap Picks: ITC, HUL
• Mid Cap Picks: Titan Inds, Britannia and Pidilite

Rural consumption boom :: Business Line

Should you go shopping for retail stocks now? ::Business Line

Will companies benefit from FDI?::Business Line

Retail stocks have been partying on news of the Government permitting foreign direct investments in multi-brand retail. But what will the opening up of foreign investment bring to companies in the listed space?

While it may be early days yet, companies do stand to benefit in the long term in terms of back-end infrastructure and capital inflow. However, their challenge will be to work around the restrictions on location and build up economies of scale.

Retail Sector : A step in the right direction…: ICICI Securities

A step in the right direction…
On Friday, the Cabinet once again approved the Department of Industrial
Policy & Promotion’s (DIPP) proposal to permit foreign direct investment
(FDI) in multi-brand retail. After a  long phase of policy paralysis, the
government has announced some big ticket reforms over Thursday and
Friday, last week. Pertaining to the Indian retail sector, the Union Cabinet
has decided to allow up to 51% FDI in multi-brand retail (subject to some
conditions). The government has made this a state subject and each state
has the right to disallow FDI in their  state.  So  far,  nine  states  and  two
Union Territories have given their written consent for allowing FDI in
multi-brand retail in their states. In our opinion, allowing State
Governments to reject FDI in their states has reduced the opportunity size
for the foreign investors. However,  partly opening up the multi-brand
retail segment to FDI will be a sentiment booster for the listed retail, real
estate and consumer companies while the actual benefits may fructify in
the long term.

Retail FDI back on the cards ::Business Line

Retail stocks have always reacted to policy changes on foreign direct investment in the sector.

The possible beneficiaries are the likes of Shoppers Stop (HyperCITY), Trent (Star Bazaar), Pantaloon Retail India (Big Bazaar), and Reliance Industries (Reliance Fresh), which have far-flung retail footprints.

Up to 51 per cent investment by a foreign player in multi-product retail (super markets) is now allowed. But whether this move will prop up the sector’s prospects materially in the near term is open to doubt.

But the new rules require that at least half the investment coming from the foreign entity should go towards building back-end infrastructure and supply chains in the first three years. If foreign investors do come forth to do this, it will benefit domestic retailers, who lack incentive to invest heavily in setting up an exclusive supply chain. Addressing the supply chain and cost issues could help these retailers expand their footprint and margins (currently around 3-5 per cent at the net level).

Retail - FDI in multi-brand: Dream comes true once again! ::Edelweiss PDF link

Indian Government has approved FDI up to 51% in multi-brand retail (currently, foreign investors can hold upto 24%, but no FDI allowed), with the onus now falling on states to give the final authorization. Nine states and three union territories have shown interest for opening retail to FDI. Pantaloon Retail (PRIL) and Shoppers Stop (SSL) have more than 50% of their stores in these states. We consider PRIL and Trent as key beneficiaries. We expect SSL to scout for a partner for HyperCity.  However, Mamata Banerjee (a key ally of Govt) had previously halted a similar attempt hence we need to watch out for her next move. Be sides, we would have to observe how easy it will be for retail companies to structure businesses in order to comply with state approvals. The Centre has also relaxed local sourcing norms in single brand retail. We expect the share of modern retail in India for consumer companies to jump from the current ~8% to 20% plus by 2020. Also, this is positive for discretionary consumer goods as it will help increase consumption and prop volume growth by ~2%.

Retail : Q4FY12 Result Preview: ICICI Securities, PDF Link

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http://www.icicidirect.com/mailimages/ICICIdirect_ConsolidatedResultPreview_Q4FY12E.pdf

Retail
ƒ Sales remain subdued barring promotional offers
Our retail coverage universe is expected to report a YoY topline growth
of 13.3% during Q4FY12E. Despite heavy promotional offers and a
preponed discount season, sales remained subdued other than in
January (when promotional offers were made). Pantaloon Retail (PRIL)
also witnessed a lukewarm response to the Exchange Mela during
February 18 – April 8, 2012.
ƒ Operating margins to be affected due to heavy discounts
We expect margin pressure on the back of high discounts offered. While
PRIL has crawled back to the 9% operating margin level in the preceding
quarter,  we  expect  margins  to  retrace  back  to  8.5%  levels.  Similarly,
Shoppers Stop is also expected to report an operating margin of ~4.5%
due to the prevailing losses of HyperCity and also due to the discounts
offered. However, Titan Industries is likely to witnesses a YoY expansion
in operating margin to 8.8% (6.0% in Q4FY11) as the company had
taken a one-time hit due to the bonus provision made for employees.
ƒ Space addition takes a breather
With the slowdown in demand, retailers have also slowed down the
space addition marginally. PRIL is expected to add 0.35 million sq ft of
space taking the total operational space to 16.6 million sq ft. Shoppers
Stop is expected to add 0.13 million sq ft thereby taking the total space
to 4.4 million sq ft. Revenue per sq ft is likely to remain subdued as
newer stores will take time to stabilise. We expect revenue per sq ft of |
1,785 and | 1,619 for PRIL and Shoppers Stop, respectively.

Consumer products: Bazaar bytes #5: Taking a deep dive into the deodorants category:: Kotak Securities PDF Link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily15032012.pdf

Consumer products
India
Bazaar bytes #5: Taking a deep dive into the deodorants category. Deodorants
has become critical for consumer companies over the last one year—HUL (market
leader), Jyothy (through Henkel) and Marico (through Paras’ brands). We take a deepdive into it—size, growth rates, key players, market share and finally its changing
contours. We see increasing activity levels in this nascent category with potential for
category growth acceleration. A large and growing presence of grey market is a
concern that the incumbents will have to cope with. Most of the market fragmentation
(top-3 players account for ~30% of the market now versus 50% in 2005) is likely
behind us, in our view—a positive for incumbents.

Retail 􀂃 ICICI Securities 3QFY12 preview

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Retail
􀂃 Revenue growth to be aided by space addition as SSSG slows down
Our retail coverage universe is expected to report a YoY topline growth
of 22.7% during Q3FY12E. Considering the overall slowdown in
consumption owing to inflationary pressure and rising interest rates
(which bring down the real disposable income), we believe that a large
part of this growth will come through space additions carried out during
the quarter. Same store sales growth (SSSG – revenue growth of stores
in existence for over a year) for all players is likely to be muted despite it
being the festive quarter. While sales for all retailers were good in the
month of October (due to Dussera & Diwali), sales for the months of
November and December were below expectations. Infact, retailers
have also witnessed a YoY dip in November and December sales
(barring northern regions where sales of winter wear was the saving
grace).
􀂃 Operating margins to remain subdued
Despite it being a festive quarter where lesser promotional offers are
running, one cannot expect a positive surprise on the operating margin
front as lower SSSG and higher operating expenses due to space
addition will eat into the operating efficiency of the retailers. The
operating performance in the quarter under review is likely to remain
subdued as newer stores will take time to stabilize.
We expect Pantaloon Retail to maintain its EBITDA margin at 8.7%. On
the other hand, Shoppers Stop’s operating margin is likely to dip from
6.7% in Q3FY11 to 5.1% in Q3FY12E due to ongoing losses of
HyperCity. Apparel sales for the company were also very weak (barring
October). For Titan Industries, we expect a marginal dip in the operating
margin to 9.6% (down by 40 bps) as the depreciating rupee will impact
input prices (imported watch components). However, the company has
taken a price hike in the range of 4 – 20% across brands to mitigate the
impact of the same.
􀂃 Space addition plans remain intact
Despite the slowdown in demand, retailers have continued with their
space addition plans. Shoppers Stop, considering its healthy balance
sheet will be in a comfortable position to continue their space addition
plans. However, due to higher leverage Pantaloon Retail will be forced
to curtail their plans if the situation worsens further. During Q3FY12E we
expect Shoppers Stop to add 0.2 million sq. ft. taking their total
operational space to 4.1 million sq. ft. Similarly, Pantaloon Retail is likely
to increase its total operational retail space from 15.7 million sq. ft. to
16.2 million sq. ft as on December 2011. Revenue per sq ft is likely to
remain flat as newer stores will take time to stabilise. For Pantaloon
Retail, revenue per sq. ft. is likely to dip 2.5% YoY to | 1,898, while that
for Shoppers Stop is expected to dip 5.0% YoY from | 2,415 in Q3FY11
to | 2,294.

Event Update Some relief; hopeful of better news to follow… ICICI Sec

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Event Update
Some relief; hopeful of better news to follow…
On Tuesday, the Government notified its decision to allow 100% foreign
direct investment (FDI) in single brand retail (under the approval route).
This move frees up the 51% limit on foreign direct investment in single
brand retail. While this move has come with certain riders and has been
positively received by the industry, retailers still await the big move of
opening up of FDI in the multi-brand retail segment.
􀂃 FDI in retail - Indian saga!
Exhibit 1: The journey thus far...
Year Event
1997
FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the
government approval route
FDI in single brand retail (to the extent of 51%) was permitted
FDI in cash and carry wholesale trading was brought under the automatic route
2010 DIPP floated a discussion paper to open up FDI in multi-brand retail
Nov-11
Approval for 51% FDI in multi-brand retail and relaxation of the 51% (to 100%) norm for single-brand
retail
Dec-11 The above decision was put on hold due to opposition from political parties
Jan-12 100% FDI in single brand retail allowed, under the government approval route
2006
Source: ICICIdirect.com Research
After facing severe opposition to the opening up of multi-brand retail to
FDI in November 2011, the government has decided to take one step at a
time and decided to allow 100% FDI in single brand retail. This further
raises hopes of opening up of the multi-brand retail segment also.
However, nothing is expected until the elections are completed. With this
move, foreign retailers will be able to come and set up shops in India with
full ownership being in their control.
􀂃 The riders
• Products to be sold should be of a single brand only;
• Products should be sold under the same brand internationally;
• Single brand retailing would cover only products, which are
branded during manufacturing;
• The foreign investor should be the owner of the brand;
• With respect to proposals involving FDI beyond 51%, mandatory
sourcing of at least 30% of the value of products sold would have
to be done from Indian ‘small industries, artisans and craftsmen
Note: Small industries would be defined as industries that have a total investment in plant
and machinery not exceeding $1 million.
Our view
We believe that further opening up of the single brand retail clearly shows
the government’s positive intent towards bringing about reforms. We see
this as an important step towards further reforms in the multi-brand
sector as well. The move is also expected to benefit India’s small
producers as any global retailer going in for more than 51% investment
will be required to source at least 30% of their products from the Indian
small and cottage industry. While it is difficult to comment on the fate of
the existing tie-ups, we do not foresee a lot of renegotiations as some
foreign players would prefer to have an Indian partner who has a proper
understanding of the Indian retail market and consumer.
Retail sector Permissible FDI limits across formats

Retail Q3FY12 preview: A mixed bag ::Religare

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Retail
Q3FY12 preview: A mixed bag
We expect our retail universe to report a strong 21.8% YoY revenue growth for
Q3FY12 on strong performances by JUBI, TTAN and BATA. At the same time, a
key metric to monitor would be volume growth deceleration across categories due
to high inflation, a spike in apparel prices and increase in gold prices. We maintain
that discretionary spends would likely remain under pressure going forward, given
the slowing GDP growth that would in turn pressurise margins. Our top pick in the
space is BATA, and we remain UNDERWEIGHT on JUBI, TTAN and SHOP.
v BATA to maintain strong growth trajectory: We expect BATA to report a strong
25% revenue growth led by robust double-digit volume growth, which would in turn
be driven by space addition. We expect margin improvement for the company to
continue with Q4CY11 margins likely improving 180bps YoY due to leverage on
employee costs and overheads. PAT growth for BATA will be the strongest ever at
42% YoY to Rs 490mn.
v TTAN to witness marginal slowdown in jewellery volumes, largely compensated
by higher gold prices: We expect TTAN’s jewellery volumes to see a low
single-digit drop led by high gold prices (up 39% YoY for the quarter); the business
would see value growth of 37%. The Watches business would likely see 15%
revenue growth (led by a 5−7% price hike). While EBITDA margins would likely
contract ~70bps YoY due to lower margins in the watches business, PAT would see
a strong 27% YoY growth to Rs 1.75bn.
v JUBI to see marginal growth moderation: JUBI is likely to report a strong 40%
growth in revenues with same-store-sales (SSS) growth at ~25% levels. We expect a
gradual tapering off in SSS growth going forward, as the outlook on discretionary
spends remains muted. EBITDA margins are likely to improve by 65bps YoY as the
company has taken a ~5% price increase to counter input cost inflation. We expect
PAT growth for JUBI at 36% YoY to Rs 258 mn.
v High interest costs to impact PF earnings: PF is likely to see a slowdown in SSS
growth (2−3% levels) as Diwali sales have not been strong for the company. We
expect PF to report a 13% YoY increase in sales led largely by space addition. While
margins are likely to improve 60bps YoY, a 30% YoY increase in interest costs to
Rs 1.4bn will impact PAT growth for the company (expect a 4.6% YoY decline in
PAT to Rs 451mn).
v SHOP to report PAT of Rs 86mn in Q3FY12: SHOP’s Q3FY12 consolidated
revenues are likely to grow 16.5% YoY to Rs 8bn driven by high single-digit SSS
growth. Standalone sales are likely to see a growth 13% YoY while HyperCity sales
25% YoY. EBITDA margins, however, could dip by 60bps YoY on account of
consolidation of HyperCity losses, while PAT would likely plummet by 48% YoY to
Rs 86mn.