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Larger landscape on the anvil for retail sector

ICICI Securities 31 Dec 2021

Buzzing:

The listed space in the Indian retail sector is expected to undergo a metamorphosis with the listing of large retail companies like Reliance Retail, Flipkart among others, which would significantly enhance the share of market capitalisation of the retail sector.

Context:

Overall, the retail sector contributes mere ~ 3% of Indian listed companies market cap vs. ~ 11% for the US market. Also, market cap distribution of Indian retail sector is disproportionate with top three listed companies contributing large chunk (two-third) of the overall sector market cap while the remaining are predominantly midcap, small cap companies.

Our Perspective:

 We believe that listing of larger retail players could lead to a re-rating of valuation multiples for the companies operating in the retail sector. The pandemic has enabled companies with strong b/s to capture emerging demand trends and accelerate the pace of market share gains due to their ability to invest in store expansion, technology & logistic solutions to widen their customer base and improvement in customer order fulfilment capabilities. We expect retail companies in our coverage universe to add ~16 million incremental square feet store space in FY21-24E vs. ~8 million added in FY18-21 (~2x). On the back of healthy square feet addition pipeline coupled with higher focus on omni channel play (physical + online) we expect revenue for our retail coverage universe to grow at CAGR of ~30% in FY21-24E (CAGR of ~17% from pre-Covid market in FY20). We believe major retailers such as Trent, Avenue Supermarts, ABFRL, Titan and Bata to be the key beneficiaries.

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