Tata group stocks among top retail picks; industry outlook positive, valuations elevated but may hold

Tata group stocks among top retail picks; industry outlook positive, valuations elevated but may hold

Indian retail companies reported a strong earnings in the quarter ended June 2022. Q1FY23 was impressive with 3 per cent and 11 per cent sales and EBITDA outperformance respectively. Most companies comfortably topped pre-covid trends. According to analysts at Edelweiss Securities, business outlook provided by retail companies and the trends, at large, are positive, indicating it was not a one-off surge. “Sustenance or gradual stabilisation is key to elevated valuations holding up,” it said. While Tata group stocks Trent and Titan, and Falguni Nayar’s Nykaa remain Edelweiss’ top picks from the industry, DMart operator Avenue Supermarts has been downgraded along with Vedant Fashions.

Sustenance key to valuations holding up

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“Our top picks are Trent (traction in growth driven by Zudio and strong guidance for Westside), Titan (massive market share opportunity ahead) and Nykaa (positive unit economics along with growth opportunity). We downgraded Avenue Supermarts and Vedant Fashions in the wake of the run-up in their stock prices,” the brokerage said.

Jewellery: Back to usual outperformance

Tata group company Titan reported an exceptional quarter with an estimate-beating margin of 13% in Jewellery, being the key highlight. Top-line growth was impressive as well with the company reporting 2.8 times on-year growth in Jewellery (23% three-year CAGR), driven by Akshaya Tritiya and Q1 being covid-free. Titan’s performance of Watches and eye care was also impressive both on recovery (110%, 123% of Q1FY20) and margins (13%, 20%).

QSRs: Inflation drives price hikes; store expansion sustains

All Quick service restaurants (QSRs), also known as fast food restaurants surpassed pre-covid revenues (even on per-store level) with incremental recovery driven by dine-in as delivery held stable, similar to that in third and fourth quarter of FY22. “Price hikes during the previous two quarters did not have a significant impact on recovery. Among QSRs, JFL delivered lowest growth primarily due to the lower delta from dine-in,” Edelweiss said.

Divergent recovery continues in apparel retail, innerwear

Apparel companies also saw a robust Q1FY23 driven by pent-up demand, wardrobe reboot (formal wear) and wedding-driven demand. This reflected in strong recovery across players, according to analysts at Edelweiss. While Page posted its best-ever Q1, V-Mart lagged yet again. “This reflects the divergent recovery among city tiers being seen for many quarters,” the research firm said in its report.

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Retail Q1 FY23 Key highlights

– Titan sprung a margin surprise and sustained outperformance versus peers

– Dine-in focused QSRs clearly outshined. Sustenance of delivery revenue is another positive.

– Apparel players (and Page) mitigated RM pressure. Trent again outperformed; V-Mart lagged as non-urban consumption was muted.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)