18 October 2021 2QFY22 Results Preview Consumer Discretionary

18 October 2021 2QFY22 Results Preview

Consumer Discretionary

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Recovery trends healthy

Recovery trends across discretionary categories are healthy: Our

discretionary universe is expected to clock 34/49% revenue/EBITDA growth

YoY (on a low base) in Q2FY22 (two-year revenue/EBITDA CAGRs of

14/15.6%). Pent-up demand stemming from the second wave-led lockdown

was a strong underpinning. F&G, jewellery, paints and apparel (ex-RR) are

expected to clock 17%, 32%, 14%, and -9% (two-yr CAGR). Ticket sizes in

retail, though normalising, remain elevated from pre-COVID levels; footfalls

are inching towards normalcy, too.

Ex-paints, universe to stage a complete margin recoup: In paints, given the

significant RM inflation in the past 6M, EBITDAM is likely to meaningfully

contract (~340bp YoY). Ex-paints, most discretionary categories are likely to

see a strong margin recoup (200-500bp YoY), courtesy (1) low inventory

write-offs and higher full price sales (for apparel retailers) and (2) Recovery-

led operating leverage. In apparel (margin improvement penciled: 475bps

YoY), however, we believe margins are yet to hit steady-state margins

(~120bps lower). We pencil in two-yr CAGRs of 14/36/16/-15% for F&G (ex-

RR), jewellery, paints, and apparel (ex-RR).

Store additions have resumed: Store additions for retailers have resumed in

Q2, post the halt in construction activity during the second wave.

Channel checks: Value chain checks suggest that (1) in F&G, international e-

tailers and Reliance Retail have been improving their assortment availability

and pricing mechanisms. Hence, competitive intensity would be a key

monitorable for strong offline incumbents; (2) an encore in rental

concessions/waivers awarded to retailers in FY21 is unlikely in FY22. This,

coupled with RM pressure, could pose arisk to margins in FY22, if footfalls

don’t oblige.

Margin of safety goes from absent to alien: While our revenue/EBITDA

growth expectations over FY19-24 and steady-state return profiles have not

changed materially, the dislocation between value and price within the

discretionary pack continues to widen and, in case of many, the margin of

safety has gone from absent to alien (most trade between 50-174x Dec-23

P/E). Any disappointment in recovery momentum and negative margin

surprise could hurt stock performances. There are no changes in

recommendations. We have BUY ratings on ABFRL and KNPL. Note:

Changes in TP are largely a function of a 1. 6M DCF roll-over (to Dec-22)

and 2. marginal EPS upgrades for select companies.

5 2

(6) (7) (18)

(39) (35) (51) (42) (37)

(1)

14 16 10 13 26

(9) (4) (19) (13)

(1)

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(60)

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etai

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1QFY22 (2-yr CAGR, %) 2QFY22 (2-yr CAGR, %)

Company RECO TP

(Rs)

Prev.

TP

(Rs)

Avenue

Supermarts SELL 2,700 2,260

Titan SELL 1,600 1,500

ABFRL BUY 310 250

Trent SELL 795 690

STOP SELL 210 190

TCNS Clo. SELL 500 430

V-MART REDUCE 3,750 3,250

Asian Paints SELL 2,650 2,460

Berger Paints SELL 710 670

Kansai

Nerolac BUY 700 675

Jay Gandhi

[email protected]

+91-22-6171-7320

Varun Lohchab

[email protected]

+91-22-6171-7334

Page | 2

Strategy report

2QFY22 Results Preview

Retail

COMPANY Q2FY22E

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

Titan STRONG

Building in 63% topline growth for Titan (two-year

CAGR 26%.

Jewellery (ex-bullion) sales grew 78% YoY (two-year

CAGR 32%). Grammage growth to outpace value

growth as gold prices have declined YoY.

Watches/eyewear grew 73/74% YoY(two-year

CAGR: -2/3%)

We build in 9.9% EBIT margin at company level.

Expect 11/9/9% EBIT margins for

jewellery/watches/eyewear respectively. Building in

34% studded ratio.

Commentary on underlying

growth demand trends (ex-pent-

up demand)

Outlook on watches and

eyewear businesses

Jewellery business EBIT margin

Inventory levels and capital base

movement in jewellery

Trent GOOD

We expect revenue to grow 77% YoY on a low base

(two-year CAGR: -1%)

Our forecasts build in 82/60% growth YoY for

Westside and Zudio resp (two-year CAGR: -4/22%)

Expect GMs to improve meaningfully YoY to 46.3%

(vs 40.9%). Note: base quarter GMs are depressed

due to significant inventory provisions. GMs are

likely to be lower than pre-pandemic levels courtesy

(1) RM inflation and (2) higher Zudio sales in mix.

Building in 14.3% EBITDA margin (vs 1.4% in

Q2FY21 and 16.2% in Q2FY20)

Commentary on demand trends

Inventory levels and revenue

ramp-up

Rental savings

Expansion strategy

ABFRL GOOD

We expect revenue to grow by 89% YoY on a low

base to INR 19.2bn (two-year CAGR -9%) in Q2FY22.

Expect Madura to recover 87% of the pre-pandemic

base (two-year CAGR: -7% YoY).

Expect Pantaloons to recover 71% of the pre-

pandemic base (two-year CAGR: -16% YoY).

EBT losses (ex other income) are likely to

meaningfully ebb YoY (from –INR3.8bn in Q2FY21

to –INR0.4bn as favourable leverage begins to kick

in)

Inventory-led write-off will be a key monitorable


Rental savings

Expansion strategy

Inventory and creditor levels

Page | 3

Strategy report


COMPANY 2QFY22E


V-MART GOOD

Given the tier-3/4 focus and its value fashion

positioning, V-MART is likely to clock a relatively

better print vis-a-vis other apparel peers.

We expect revenue to grow at 75% to INR3.07bn

(two-year CAGR: -1%)

VMART added five stores (net) for the quarter (store

count: 368).

Expect GM to remain stable YoY at 30% and

EBITDAM to improve (on a low base) YoY to 6.4%

(still lower vs pre-pandemic levels) as rental bills

begin to trickle back in the P&L


Rental savings

Expansion strategy


Consolidation opportunities

TCNS Clothing AVG

Building in 68% growth in Q2 to INR 2.4bn (two-

year CAGR -13%). Topline still remains online

heavy. Offline performance lags other apparel peers,

given the category TCNS deals in (Ethnic wear)

Gross margin expected to expand 640bp to 58% as

heightened online skew (in base) begins to mean-

revert (still meaningfully lower than typical Q2 GM).

Building in 13.2% EBITDAR Margin for Q2 (vs -

11.3% in Q2FY21, 20.3% in Q2FY20)

EBO additions to pick up in Q2. Expect TCNS to add

20+ stores in Q2.


Rental savings

Expansion strategy


Consolidation opportunities

Shoppers Stop WEAK

Given STOP’s predominant mall-based presence

(malls being the most impacted by the pandemic),

revenue recovery is likely to be the weakest in the

peer set

We expect revenue to grow by 90% YoY to INR

5.5bn, on a low base (two-year CAGR -19%).

Building in 750bps GM expansion YoY (on a low

base, still lower than pre-pandemic levels).

However, PBT losses (INR375mn) would ebb YoY as

fixed cost absorption improves.


Rental savings

Expansion strategy


Page | 4

Strategy report


Paints

COMPANY 2QFY22E


Asian Paints GOOD

We expect a strong 23% growth YoY for the

decorative business in Q2FY22 on a low base. (2-yr

CAGR: 14%). 21/2% volume/realisation growth built

(consol: 22% growth built in)

Given rising RM pressure, we build in ~475bps

contraction YoY in gross margin (standalone).

EBITDAM contraction to be lower than GM

contraction, courtesy tight cost control measures. We

build in 350bps EBITDA margin contraction YoY

(21.9%).

Net profit to grow at 3% CAGR (2-yr) to INR8.4bn


Commentary on input cost

trends

Rebating and discounting trends

Dealer addition trajectory

Berger Paints GOOD

Berger to marginally outpace APNT, given lower

base and its higher exposure to the less impacted

tier-2/3 and north/east focus.

We build in 23.7% YoY growth in standalone

business (+21/2% volume/realisation growth). Two-

year revenue CAGR: 15%



EBITDAM contraction would be lower than GM



(16.3%).

Net profit to grow at 7% (2-yr CAGR) to INR 2bn.


Commentary on input cost

trends



Kansai Nerolac WEAK

We model a 18% topline growth (to lag the top 2),

underpinned by a 20.7% YoY growth in decorative

business (19.5/1% volume realisation growth and

12% industrials growth.

On a two-year basis, topline CAGR baked in is 10%.



EBITDAM contraction to be lower than GM



(16.6%).

Net profit to decline to 1.68bn. (2-yr CAGR: -7%).

Commentary on performance

impact due to the second wave



Page | 5

Strategy report


Estimate changes

Retail The Titan Company

(Rs mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 2,70,298 2,64,389 2.2 3,21,312 3,16,729 1.4 3,72,521 3,67,266 1.4

Gross Profit 68,941 67,699 1.8 86,467 85,234 1.4 1,00,080 98,669 1.4

Gross Profit Margin (%) 25.5 25.6 (10 bps) 26.9 26.9 - 26.9 26.9 (0 bps)

EBITDA 30,368 30,129 0.8 38,044 37,883 0.4 44,908 44,717 0.4

EBITDA margin (%) 11.2 11.4 (16 bps) 11.8 12.0 (12 bps) 12.1 12.2 (12 bps)

APAT 19,636 19,426 1.1 24,967 24,752 0.9 29,875 29,418 1.6

APAT margin (%) 7.3 7.3 (8 bps) 7.8 7.8 (4 bps) 8.0 8.0 1 bps

EPS 22.1 21.9 1.1 28.1 27.9 0.9 33.7 33.1 1.6

Source: HSIE Research

Trent Ltd

(Rs mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 29,673 29,673 - 47,342 47,342 - 53,487 53,487 -

Gross Profit 15,017 15,017 - 24,113 24,113 - 26,849 26,849 -

Gross Profit Margin (%) 50.6 50.6 - 50.9 50.9 - 50.2 50.2 -

EBITDA 4,973 4,973 - 9,214 9,214 - 10,296 10,296 -

EBITDA margin (%) 16.8 16.8 - 19.5 19.5 - 19.2 19.2 -

APAT 1,137 1,137 - 3,153 3,153 - 3,356 3,356 -

APAT margin (%) 3.8 3.8 - 6.7 6.7 - 6.3 6.3 -

EPS (Rs) 3.2 3.2 - 8.9 8.9 - 9.4 9.4 -


ABFRL

(Rs mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 74,052 73,744 0.4 95,465 95,098 0.4 1,09,869 1,09,456 0.4

Gross Profit 37,412 36,888 1.4 48,708 48,045 1.4 55,893 55,135 1.4

Gross Profit Margin (%) 50.5 50.0 50 bps 51.0 50.5 50 bps 50.9 50.4 50 bps

EBITDA 11,550 11,486 0.6 16,931 16,851 0.5 20,295 20,201 0.5

EBITDA margin (%) 15.6 15.6 2 bps 17.7 17.7 2 bps 18.5 18.5 2 bps


V-MART Retail

(Rs mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 17,590 17,590 - 27,820 27,820 - 33,649 33,649 -

Gross Profit 5,632 5,632 - 9,103 9,103 - 11,010 11,010 -


EBITDA 866 866 - 2,123 2,123 - 2,798 2,798 -

EBITDA margin (%) 4.9 4.9 - 7.6 7.6 - 8.3 8.3 -

APAT 343 343 - 1,224 1,224 - 1,710 1,710 -

APAT margin (%) 1.9 1.9 - 4.4 4.4 - 5.1 5.1 -

EPS (Rs) 17.4 17.4 - 62.1 62.1 - 86.8 86.8 -

Page | 6

Strategy report


TCNS Clothing

(Rs mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 9,632 9,679 (0.5) 12,713 12,713 - 14,566 14,566 -

Gross Profit 5,586 5,612 (0.5) 7,951 7,951 - 9,102 9,102 -


EBITDA (Reported) 921 854 7.9 2,205 2,174 1.4 2,535 2,517 0.7

EBITDA margin (%) 9.6 8.8 74 bps 17.3 17.1 24 bps 17.4 17.3 12 bps

Shoppers Stop

(Rs mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 26,893 26,893 - 35,090 35,090 - 37,742 37,742 -

Gross Profit 10,697 10,697 - 14,506 14,506 - 15,602 15,602 -


EBITDA 214 80 168.2 1,442 1,442 - 1,683 1,683 -

EBITDA margin (%) 0.8 0.3 50 bps 4.1 4.1 - 4.5 4.5 -

Paints – No estimate changes

Financial Summary

Company

NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs. bn)

2Q

FY21

1Q

FY21

2Q

FY22E

QoQ

(%)

YoY

(%)

2Q

FY21

1Q

FY21

2Q

FY22E

QoQ

(%)

YoY

(%)

2Q

FY21

1Q

FY21

2Q

FY22E

QoQ

(bps)

YoY

(bps)

2Q

FY21

1Q

FY21

2Q

FY22E

QoQ

(%)

YoY

(%)

Food &

Grocery

Avenue

Supermarts 52.2 50.3 76.5 52.0 46.6 3.2 2.2 6.7 202.9 106.3 6.2 4.4 8.8 436 253 2.1 1.2 4.5 334 238

Jewellery

Titan 45.5 34.7 74.5 114.4 63.6 3.1 1.4 8.3 509.5 166.8 6.9 3.9 11.2 727 434 1.7 0.2 5.5 535 380

Apparel

ABFRL 10.2 7.7 19.2 148.6 88.9 (0.0) (1.6) 2.9 (282.0) NM (0.2) (20.9) 15.3 3,621 1,548 (1.8) (3.4) (0.0) 331 177

Trent 4.5 3.3 7.6 132.0 67.9 0.1 (0.3) 1.1 (442.3) NM 1.4 (9.7) 14.3 2,404 1,292 (0.5) (0.8) 0.0 88 52

STOP 2.9 2.0 5.6 176.3 90.0 (0.3) (0.6) 0.4 (170.8) NM (11.9) (31.2) 8.0 3,921 1,987 (1.0) (1.2) (0.3) 90 74

TCNS

Clothing 1.4 0.9 2.4 157.9 67.9 (0.2) (0.2) 0.3 (236.6) NM (11.3) (24.9) 13.2 3,811 2,448 (0.3) (0.4) 0.1 42 34

V-MART 1.8 1.8 3.1 73.1 75.0 (0.0) (0.0) 0.2 (1,057.7) NM (0.2) (1.1) 6.1 721 630 (0.2) (0.3) (0.1) 14 4

Paints

Asian Paints 53.5 55.9 65.4 17.1 22.3 12.7 9.1 13.2 44.6 4.4 23.6 16.4 20.2 383 (346) 8.5 5.7 8.9 313 35

Berger

Paints 17.4 18.0 21.5 19.4 23.2 3.4 2.4 3.4 43.6 2.2 19.2 13.3 16.0 269 (328) 2.2 1.4 2.3 85 6

Kansai

Nerolac 12.9 13.0 15.2 16.6 17.8 2.6 1.9 2.5 34.6 (2.9) 20.1 14.4 16.6 222 (354) 1.6 1.2 1.7 49 9

Others

Reliance

Retail 366 336 441 31.5 20.7 19.9 19.4 24.8 27.7 24.8 5.4 5.8 5.6 (17) 18

-Grocery 99 84 116 39.2 18.0 6.8 5.8 10.5 80.1 53.4 6.9 7.0 9.0 204 208

-Apparel 29 28 37 32.2 30.0 6.3 5.6 7.4 32.2 18.2 22.0 20.0 20.0 - (200)

Page | 7

Strategy report


Valuation Summary

Company Mcap

(Rs bn)

CMP

(Rs) Reco. TP (Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core ROCE (%)

FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E

Avenue Supermarts 3,452 5,330 SELL 2700 25.7 41.1 50.3 207 130 106 136 83 68 14.2 19.5 20.5

Titan 2,276 2,563 SELL 1600 22.1 28.1 33.7 116 91 76 76 61 51 17.1 19.1 20.4

ABFRL 242 265 BUY 310 0.0 0.0 0.0 NM 75 44 65 27 20 -2.1 6.5 10.3

Trent 410 1,154 SELL 795 3.2 8.9 9.7 527 190 174 86 47 41 5.0 10.8 10.5

STOP 24 278 SELL 210 -10.4 2.7 4.4 -27 105 63 41 13 12 -4.0 -0.4 3.2

TCNS Clothing 40 656 SELL 500 -0.2 12.6 19.8 NM 52 33 42 17 14 0.7 14.0 22.6

V-MART 85 4,322 REDUCE 3750 17.4 62.1 86.8 249 70 50 96 39 29 3.2 14.8 19.0

Asian Paints 3,162 3,297 SELL 2650 37.1 44.0 50.6 89 75 65 59 51 45 31.9 35.5 39.6

Berger Paints 815 839 SELL 710 9.0 11.0 13.0 93 76 65 58 48 41 22.1 24.7 27.3

Kansai Nerolac 327 608 BUY 700 10.4 12.8 14.9 58 48 41 36 30 25 12.4 13.9 15.1


Page | 8

Strategy report


HDFC securities

Institutional Equities

Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,

Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Board: +91-22-6171-7330 www.hdfcsec.com

Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Disclosure:

We, Jay Gandhi, MBA & Varun Lohchab, PGDM, authors and the names subscribed to this report, hereby certify that all of the views expressed in this

research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of

publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or

view(s) in this report.

Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative

or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding

the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material

conflict of interest.

Any holding in stock –No

HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

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18 October 2021 2QFY22 Results Preview Consumer Discretionary

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