Q4FY2015 result expectations
After weak demand in the festive season of the last year, the broader on-ground consumer sentiment remained weak during the January-March quarter as well. Despite the weak sentiment, brand salience, improvement in product mix and cost optimisation efforts along with the benefits of lower raw material prices are likely to aid the Q4FY2015 performance of a few retail players. Thus overall, we expect a mixed performance from our retail and lifestyle universe. We expect Relaxo Footwear, Century Plyboards India and Page Industries to post a healthy revenue growth of 25%, 22.3% and 22.5% year on year (YoY) respectively for Q4FY2015. On the other hand, Raymond, TTK Prestige, Arvind and Kewal Kiran Clothing Ltd (KKCL) are likely to post a weak revenue growth for the quarter.
Margin expansion would be strong for Raymond (+113 basis points [BPS] YoY), purely on account of a low base of Q4FY2014 when a write-off of its apparel inventory had taken its toll on its overall margin, followed by V-Mart Retail and Relaxo Footwear. KKCLâ??s margin is expected to contract sharply by 540BPS on account of a lower revenue growth resulting in lower absorption of the fixed overheads. After reporting a bumper all-time high margin in Q3FY2015, Century Plyboards India is expected to maintain its margin at the Q4FY2014 level of 17.5% for the current quarter.
Even though the retail players are likely to report a sombre revenue performance, we believe that the structural demand drivers are turning positive for the sector (in terms of lower inflation, falling interest rates, expectation of rising incomes and growing employment) which is likely to result in a robust volume-led growth ahead. Thus, we believe that players with strong consumer connect and brand equity, deep distribution reach (employing a judicious mix of online as well as store presence) and robust balance sheet are likely to emerge as winners in the next 12-18 months. Their volumes would improve and they would experience operating leverage which would result in a disproportionate growth in their earnings.
On the expectation of demand recovery, led by leading positive macro indicators like low inflation and interest rate cut, the consumer discretionary pack has witnessed a rally and their stocks are trading at 25-28x FY2017E earnings on an average. We remain positive on the sector. Amongst our coverage universe, we remain positive on Century Plyboards India, KDDL and Relaxo Footwear. On the soft coverage front, we hold a positive view on Arvind, TTK Prestige and Titan Company.
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