Retail Sector To Benefit From Domestic Consumption

The retail sector is one of the most profitable sectors in India. With the global economy, particularly that of the US and Europe, expected to witness a mild recession, the Indian growth story will remain intact with the help of domestic consumption. Bhavya Rathod shares the outlook on the retail sector while the DSIJ Research Team highlights top picks from this buzzing industry 

Taking into account the latest GDP data in India, we find that the services sector has done exceedingly well thanks majorly to the transport and hotel sectors. The retail sector is one such that is in the limelight post the pandemic as the demand normalisation and uptick in sales is expected to create profitable opportunities for the sector just as in the case of the hotel industry. The retail sector was undoubtedly the most negatively impacted sector owing to the strict pandemic-triggered lockdowns in India. However, after a tough two years the retail sector is all set to attract both customers and investors as vibrancy is seen in the sector once again.

Says Ashwin Gandhi, Promoter and Partner, Kohinoor Mall, “At Kohinoor Cloth Store which is our 80,000+ sq. feet premium retail space, we have seen sales reach the prepandemic levels. Compared to 2022, the retail market looks very upbeat and we are witnessing good footfalls in our new venture Kohinoor Mall as well. The consumer demand has gone up and we are expecting a very good wedding season this April and May. Over the last two years, the lockdowns didn’t allow consumers to visit shops and consumption was curtailed due to extraordinary conditions. Now, the entire sentiment is very upbeat in the retail industry. I see more and more people visiting the mall every month.”
 

Retail Sector in India

The retail sector in India is one of the most strategically important sectors as it employs nearly 8 per cent or 35 million plus of the Indian population. It is expected that the sector will create 25 million new jobs by 2030. Just to refresh our memories, India ranked second in the Global Retail Development Index (GRDI) in 2021. This shows that India ranks among the best countries to invest in the retail space. Several factors are working in favour of the retail sector in India – a burgeoning middle-class, rapid urbanisation trend, increasing household incomes, connected rural consumers and increasing consumer spending. Not to forget, India has the largest population in the world. 

The e-commerce trend is also one of the most important factors shaping the retail sector in India. Hyper digitisation, sustainability, use of data science and personalised commerce are some of the visible trends impacting consumer behaviour and shopping trends in India. Says Rahul Bhagat a tech-savvy consumer, “The other day I visited the new Tata Croma store in my area and purchased some mobile accessories. While billing, I shared my mobile number as the salesperson asked for it. All my data was immediately captured in the system and the bill was generated. The salesperson could also check my transaction history with them. The company now has so much data about me. I think this is the new normal. A few years back I would have been alarmed or majorly surprised.” 

The Indian e-commerce industry is one of the shining spots in the retail sector in India. It is expected to cross USD 350 billion in gross merchandise value (GMV) by 2030, according to various research agencies. Driven by the socio-demographic and economic factors, the Indian retail market is estimated to reach USD 2 trillion by 2032 while the Indian e-commerce industry is expected to contribute USD 350 billion in sales, thus reflecting a CAGR of 23 per cent. Here, the most popular categories are electronics and smart phones when it comes to placing orders online while one-fifth of the apparel sales in India happen online. Overall, the retail sector is expected to deliver growth of over 10 per cent from 2021 to 2032. The share of organised retail to the total retail market stands at a mere 12 per cent. This can be expected to increase in the coming years.

Conclusion 

With the right demand drivers in place for the retail sector in India, investors should not miss adding retail companies in their portfolios. Those companies with the right business model that is expected to deliver growth in earnings are primed to outperform as the growth triggers are in place for the sector. The retail sector remains one of the most attractive sectors with good profit margins. As of now, the sector is fragmented when compared to the developed world. The fragmented nature of the sector presents a huge opportunity for the structured retail industry to flourish as the market for the final product is huge with tailwinds in place. 

In spite of flourishing organised retails and increasing shopping malls, India has one of the lowest per capita retail spaces accessible around the globe. The rise in e-commerce is shaping the contours of the retail industry in India. The increasing penetration of smart phones and its impact on how people shop is changing the dynamics of the industry. There is no doubt that both B2B e-commerce and B2C e-commerce will increase in India. Another trend visible is the preference by consumers for ethical, environmentally conscious and socially aware approach and behaviour.

These qualities are seen as differentiators and sustainability is in focus today more than ever. Thus, to invest in more sustainable operations has become a revenue-based decision. The government’s decision on FDI in retail and impetus on digital transformation will only help the retail industry move forward in the right direction. Also, given the fact that India is presenting a shining status as of now in terms of economic growth, the graph of consumption is set to rise despite some hiccups or challenges that may come in the way of the consumption pattern. A bet on the retail sector in India is thus a bet on the consumption story in India.

Aditya Vision Ltd
 

CMP (₹ ): 1,529.35 
BSE CODE: 540205
Face Value(₹ ) : 10
52 Wk High/Low: 1,845.00 / 640.30
Mcap Full ( ₹  Cr.) : 1,839.58 

Headquartered in Patna, Bihar, Aditya Vision Limited is a cutting-edge multi-brand consumer electronics retail chain. The company’s journey began with just one retail store in Patna back in 1999 but in the third decade of its journey it has grown from strength to strength into what is now a chain of the most reputable consumer electronics retail stores with presence in all the major cities of Bihar and Jharkhand, with plans to expand further. With a robust and expanding network of nearly 100 outlets located throughout Bihar and Jharkhand, the company is dedicated to offering its customers the best possible shopping and after-sales experiences. 

More than 1 crore customers have been served since its inception, and the number keeps rising. Today, Aditya Vision is a well-known brand in consumer electronics, selling over 10,000 products that range from digital devices like smart phones, laptops and tablets to offerings like televisions, sound bars, home theatres, cameras and accessories as well as home appliances like air-conditioners, refrigerators and washing machines to small appliances or cooking and kitchen appliances like chimneys, air fryers, soup makers, cook-tops and dishwashers across many national and international brands. 

The company is the first retailer of consumer electronics in India to be listed on the Bombay Stock Exchange (BSE). ‘Aditya Seva’ and ‘Aditya Suraksha’ are the company’s two most trusted and reliable customer service tools. Aditya Seva is a first-of-itskind and unique helpline service established by the company to assist its customers with any and all after-sales issues. Aditya Seva’s help desk is a one-stop solution for all electronics-related issues for its customers. With a strong network of technological experts from all of the company’s partner brands, the company is proud to announce that it has a 100 per cent success rate in resolving all guest grievances. 

Aditya Suraksha is the company’s extended warranty programme, which allows its customers to enjoy an extended warranty on a variety of products without incurring additional repair costs, even after the manufacturer’s warranty has expired. Customers can also take advantage of free pickup and drop-off services at their doorsteps. The warranty programme is intended to maximise the consumer experience and has gained recognition and goodwill over the years. Taking into account the company’s financial performance, it reported a growth of 20.86 per cent from ₹ 262.98 crore registered in Q3FY22, recording total revenue of ₹ 317.85 crore in Q3FY23. It has reported strong EBITDA growth of 32.13 per cent. 

Comparing the net profit for the third quarter of FY23 to the same quarter last year, it surged 20.64 per cent from ₹ 16.18 crore to ₹ 19.52 crore. Considering its yearly performance, the net profit of company soared 48.34 per cent to ₹ 36.61 crore as against Rs 24.68 crore during the previous year. Also, net sales rose by 20.2 per cent to Rs 899.11 crore as against ₹ 748 crore during the previous year ended on March 2021. Recently, the Nomination and Remuneration Committee of the company at its meeting held on March 2, 2023 approved the grant of 148,600 stock options under ‘Aditya Vision – Employees Stock Option Plan 2021’. Each stock option carries the right to apply for and be allotted one equity share of face value of ₹ 10 each of the company. 

At the time of writing, the company had a market value of ₹ 1,840 crore with the promoter owning significant 68.14 per cent stake. Institutional investors have modest stake of 0.09 per cent while non- institutional investors have a total stake of 31.77 per cent. Significant promoter holding is undoubtedly a strong signal in favour of the company. The shares of Aditya Vision have soared by leaps and bounds, skyrocketing by more than 110 per cent in the last one year. In the last five months, its shares have remained in a narrow range with very little growth. On the BSE, its shares are currently trading close to ₹ 1,530 per share with a 52-week high and low of ₹ 1,845 and ₹ 640.30, respectively. 

Many factors have drawn investors to this Small-Cap profit-making stock but the high price-to-earnings (PE) ratio may be a cause of concern worry for them. Although the stock has a high PE ratio as compared to industry peers, return ratios like return on equity (ROE) and return on capital employed (ROCE) are also noticeably high, indicating the company’s overall profitability. With a healthy level of earnings-per-share (EPS), the company declared a final dividend of ₹ 6 per share in the September quarter. Over the last five years, it has delivered healthy profit growth of 83.2 per cent CAGR and is expected to deliver a good quarterly performance.

Ethos Ltd. 

CMP (₹ ): 995.40
BSE CODE: 543532
Face Value(₹ ) : 10
52 Wk High/Low : 1,145.35 / 711.60
Mcap Full ( ₹  Cr.) : 2,324.18 

Ethos Watches is India’s largest chain of luxury watch boutiques with 50 stores in India and over 50 top luxury watch brands. The company takes pride in helping its customers choose the perfect watch for them or their loved ones, while protecting them from rampant malpractices in India such as smuggled, fake and refurbished watches. Ethos Watches is India’s largest luxury and premium watch retailer employing over 475+ people. The company provides clients with a content-driven luxury shopping experience through its online and physical presence. It retails 60+ premium and luxury watch brands in India. Around 7,000 premium, bridge to luxury, luxury and high luxury watches are available for customers to select from 39 exclusive brands. 

In addition to premium and luxury watch retail, the company has begun to undertake retail of certified pre-owned luxury watches since fiscal 2019. In addition to its chain of 50 physical retail stores across 18 cities in India in a multi-store format, it offers an omnichannel experience to its customers through e-commerce and website as well as social media platforms. With dominance in a lucrative market for luxury watches, Ethos Watches is India’s largest retailer of high-end and luxury watches. The company’s growth has been galvanised by its portfolio of 60+ premium and luxury watch brands, of which more than 35 brands are available exclusively at Ethos Watches. 

The company’s products are directly sourced from brand owners, Indian subsidiaries or authorised dealers. The category of watches is derived from its price points, as for example, premium, bridge to luxury, luxury and high luxury. For the third quarter ended on December 31, 2022, the company reported net sales of ₹ 229.68 crore. This is a rise of 17.61 per cent over the net sales of ₹ 195.28 crore reported same time last year. Likewise, the operating profit also saw a rise of 35.15 per cent in the recent quarter. The operating profit climbed to ₹ 39.51 crore from ₹ 29.24 crore in the first quarter Q3FY23. 

The company also reported positive quarterly net profit of ₹ 20.57 crore as compared to net profit of ₹ 12.01 crore in the previous year same quarter, presenting a rise of 71.34 per cent. 

The company’s annual financials reveal that its net sales surged to ₹ 577.28 crore in FY22 from ₹ 386.57 crore in FY21, giving an increase of 49.33 per cent. The operating profit zoomed by 41.93 per cent to ₹ 79.68 crore in FY22 from ₹ 56.14 crore in FY21. Similarly, the net profit for the year FY22 stood at ₹ 23.36 crore, delivering an exceptional return of 405.47 per cent from ₹ 4.62 crore reported in the past year. 

Ethos Watches recorded its highest ever quarterly EBITDA and PAT in Q3FY23 on the back of robust demand and focused marketing initiatives despite having spent an amount of about ₹ 2 crore on Grand Prix d’Horlogerie de Genève (GPHG) which was a non-sales event to ensure India is put on the global map and additional foreign exchange fluctuation loss. Also, strong revenue growth across offline and online channels was seen. Its EBITDA margin expanded on the back of cost optimisation initiatives and operating leverage benefits. Higher share of in-house brand sales continues to improve its margin profile. 

Recently, the company signed agreements with Messika and Rimowa to retail their collections of fine jewellery and luggage, respectively, in India. The contracts with Rimowa to retail its line of upscale travel goods and Messika to retail its line of upscale jewellery in India as part of its strategy to capitalise on its strengths. The business wants to create newer, longer-focused brands in other product categories in addition to expanding the product offerings under its present portfolio of luxury watch brands. Ethos and the Business have a franchise arrangement for the opening of the first RIMOWA store in Mumbai's Jio World Plaza. RIMOWA was established in 1898 in Cologne, Germany, and has been a member of the LVMH brands portfolio since 2017. At that time, RIMOWA has dominated the market for high-end luggage and necessary travel gear.

The rise in the number of HNIs in fast-growing economies such as China and India have led to increase in the wealth of its people. The rise and acceptability of e-commerce in India have also been favourable. Globally, the CPO market plays a pivotal role in developing the luxury market and contributes as much as around 30 per cent to the overall luxury industry, while in India it’s at a very emerging stage. As the leader in this market, Ethos Watches is most likely to experience rapid expansion. In order to give the business an additional boost, the company also plans to diversify into luxury travel items like luggage and bags and jewellery from well-known international brands. Ethos has proliferated to become a leader in the Indian luxury watch retail industry. Ethos’ pan-India presence, exclusive brand partnerships, strong omnicapabilities, differentiated customer service, and strengthened balance sheet should help it to continue gaining share in the fast-growing luxury-watch retail market. 

(Closing price as of Mar, 03, 2023)