Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

Demand pressures to moderate revenue growth of Indian fashion retail entities to 10% in FY2024: ICRA

Posted On: 2023-06-19 19:33:17 (Time Zone: IST)

After reporting a stellar 51% YoY revenue growth in FY2023, revenue growth of fashion retailers is set to moderate in the current fiscal amid inflationary headwinds. According to ICRA's most recent industry analysis, revenue growth of 11 listed retail entities in its sample set will moderate to 10% in FY2024. Their operating profit margins (OPMs) are also expected to decline by 100 bps to around 5.7%, given the demand softening and continued high advertisement and promotion spending expected during the year. The rating agency currently has a Stable outlook on the retail sector.

Commenting on the trends, Ms. Sakshi Suneja, Vice President & Sector Head, - Corporate Ratings, ICRA, says, "The fashion retail sector has been facing demand slowdown due to inflationary pressures, especially post the last festive season. The slowdown has been more pronounced in the value fashion segment, where the average sales per sq. ft still remains lower than pre-pandemic levels and has been witnessing a QoQ decline since Q3 FY2023. The premium segment, after having remained resilient till December 2023, also started showing signs of demand slowdown in Q4 FY2023, with its average sales per sq. ft remaining below the pre-Covid levels. Demand pressures are expected to persist till H1 FY2024, with the sector expected to show improvement only with the onset of the festive season. This, coupled with regular network expansion, will translate into an estimated 10% revenue growth for FY2024."

Despite robust revenue growth in FY2023 (primarily led by network expansion), the OPMs trailed their pre-pandemic levels by 100 bps, given the demand slowdown and sharp increase in advertisement and promotion expenses undertaken by the retailers to make up for the lost sales of FY2021 and FY2022. Most large retailers also acquired/launched brands in newer categories, especially in the ethnic wear segment and have been undertaking substantial investments to ramp up these brands. Retailers as of now, have not indicated any reduction in ad-spends in the coming quarters as they are hopeful of demand recovery in H2 FY2024. ICRA also expects discounting levels to go up in H1 FY2024 as retailers look to shore up sales, which shall exert some pressure on the gross margins.

Following limited retail space addition in FY2021, retailers resumed their store expansion plans in FY2022 and FY2023 and added nearly 5.2 million sq. ft (reflecting 30% addition over the retail space as on March 2021) of space during this period. Total capex outlay on store additions of entities in ICRA's sample set increased YoY by 60% (partly aided by a low base) to Rs. 1,460 crore in FY2023, despite a slowdown in the value fashion segment. No major pruning of capex has been announced by retailers so far, given the expected demand revival and favourable long-term demand prospects of the Indian retail industry. Capex outlay towards store additions is thus expected to increase further by 10% in FY2024 to 1,600 crore.

Elaborating on this, Ms. Suneja adds, "Post the pandemic, retailers have also recalibrated their focus towards expansion via offline channels. Sales through the online channels, which were earlier expected to grow at a faster pace, have now slowed down. Given the low level of penetration of organised segment within the apparel retail and loss-making nature of online operations necessitating substantial investments, physical store expansion is the preferred growth route for the retailers, especially in Tier-II and III cities. Online sales accounted for only ~8% of the overall revenues of entities in ICRA's sample set and are likely to increase to 10-12% by FY2025/26."

Given the sizeable capex plans and expected weakening in earnings, the credit profile of large, listed entities will moderate in FY2024, though it is expected to improve in FY2025 as demand conditions improve. The total debt-to-operating profit is expected to increase to ~1.9 times in FY2024 from 1.3 times in FY2023, with interest cover moderating to 8 times vis-à-vis ~13 times in FY2023.

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

India Inc revenue growth likely moderated to 4-6% in March quarter - CRISIL Market Intelligence and Analytics

Construction sector entities' revenues to grow by 12-15% in FY2025; margins to expand by 25-50 bps: ICRA

MakeMyTrip Report Reveals Where, How, When and With Whom India Travels

ICRA revises banking sector outlook to Stable from Positive

Massive shift in career aspirations as 8 out of 10 professionals eye new career paths this appraisal season, reports

ICRA: Annual securitisation volumes estimated at Rs. 1.88 lakh crore for FY2024

46% of women opted for used cars in March 2024 in the country: Spinny Reports

Addressing data privacy, security and ethical challenges is essential for the responsible adoption of GenAI in healthcare: PwC India report

Retail pools continue to display stable performance across various asset classes: ICRA

ICRA predicts small finance banks will raise over Rs 10,000 crore in FY 2024, up from Rs 6,400 crore in FY2023

CRISIL Ratings: Complex fertilisers volume to grow 4-5% next fiscal

Issuances of securitised debt instruments (SDI) by corporate entities to rise to Rs 100 crore in FY2024: ICRA

Godrej Interio's 'HomeScapes' Study reveals Indians want ‘Me-Time’ at home

GDP growth to moderate to 6.0% in Q3 FY2024, led by agriculture and industry: ICRA

Indian stock exchanges rank first in the world in terms of the number of IPOs in 2023

CRISIL Ratings: After soaring this fiscal, airlines to land >20% operating profit growth next fiscal

Rising frauds propel demand for AI/ML strategies: Experian Study

Cement makers to add 150-160 MTPA capacity by fiscal 2028 - CRISIL

Investor exuberance propelling broking industry performance, MTF achieves a new high: ICRA

CRISIL Ratings: Securitisation volume up ~20% in first nine months of this fiscal

India is fastest growing large economy globally in CY2023-CY 2024 - Pantomath Report

CRISIL Ratings: Market share of gold-loan NBFCs steady despite bank competition

CRISIL Ratings: Vehicle loan AUM to vroom past Rs 8 lakh crore next fiscal

45% of Newbie traders claim that 'not knowing enough' is the primary reason for losses incurred in Futures & Options trading - Sharekhan's survey reveals

CRISIL Ratings: Agri pump makers to see 7-9% revenue growth next fiscal

Indian mutual fund industry likely to sustain its strong inflows in 2024: ICRA Analytics

CRISIL Ratings: Operating profit of offshore rig operators to swell 30% next fiscal

CRISIL Ratings: Organised F&G retailer revenue to grow in mid-teens next fiscal

CRISIL Ratings: Shippers see a further revenue dip of 5-7% next fiscal as charter rates course correct

82% of professionals are concerned about job redundancy due to emerging technologies: Hero Vired Report

UPI transactions witnesses 118% rise at retail stores in 2023: PayNearby Report

Happy Forgings Limited - IPO - A trusted supplier for several Indian and Global OEMs - Reliance Securities

CRISIL Ratings: Penetration of electric buses set to double next fiscal

India's refined copper consumption to grow by 11% in FY2024, despite global headwinds: ICRA

CRISIL Market Intelligence and Analytics - Curb on cane juice for ethanol - Sugar output lift

Stable Repo Rates to Keep the Momentum Going for the Housing Market - Anuj Puri, Chairman - ANAROCK Group

Payback period for investment in sustainable warehouses come down to three years in India: A JLL - IndoSpace report

CRISIL Ratings - Profit margins of cotton yarn spinners to plunge 250-350 bps to decadal lows of 7-8% this fiscal

Government, PSUs, and Defence sector experience 14% upsurge in hiring: foundit Insights Tracker

CRISIL Ratings: Spirits high for organised liquor makers, revenues seen up 13%

Corporate bond market to more than double by fiscal 2030 - CRISIL

Gas Utilities : Gas consumption at record highs, growth now to trickle - Kotak Institutional Equities

Emkay and Geojit increase target prices of LIC, expect over 20% upside

CRISIL Ratings: Mall area to rise by 35% over the medium term on retail surge

Crop & Chemical Dashboard: Bottom is near, recovery unclear - Kotak Institutional Equities

Loan sell-downs of personal loan pools may see a temporary pause following the RBI's decision to increase risk weights: ICRA

India Surges Ahead in 5G Deployment, Paving the Way for a High-Tech Future!

CRISIL Ratings: Construction equipment revenue to grow 14-15% this fiscal

India to contribute 22% to the Global ER&D sourcing market by FY30: BCG-nasscom Report

CRISIL Ratings: In a decadal first, revenue of agrochemicals makers to slip ~3% on tepid demand this fiscal

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020