‘Consumption will drive earnings in second half of FY19’

‘Consumption will drive earnings in second half of FY19’
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New Delhi, Oct 11: The recent 12 percent correction from highs on the Nifty was driven by domestic (high valuations, lack of expected earnings, rupee depreciation) and global factors (higher crude oil and rising global interest rates and bond yields).
In 2018 so far, the rupee has depreciated 16 percent versus the dollar. Since long, India has never faced a yearly capital account deficit and in most years capital account surplus fully funded the current account deficit. India is now faced with large overall balance of payments deficit and chance of even a capital account deficit.
Steps are taken in the right direction by the government — forming a new board at IL&FS and lenders such as SBI stepping up target to purchase good portfolio of assets from NBFC’s which will give respite to the liquidity and sector.
September quarter earnings have begun and will provide stock-specific reactions.
Ahead of festive season, consumption will be the key to drive earnings for H2FY19 and raising of minimum support price (MSP) in Rabi crop.
For a second successive quarter, despite negative SSSG (same store sales growth), Pantaloons’ EBITDA margin expanded 330 bps YoY to 9.6 percent. As per the management, its sharp EBITDA margin expansion resulted from the gross margin expansion and store rationalisation.
Driven by better product mix and store rationalisation, Pantaloons’ 9.6 percent margin was its highest, expanding 330bps YoY.
On the strong profit growth, we raise our EBITDA margin Estimate by 1 percent to 8.30 percent FY20E .
The company’s revenue grew 8.7 percent YoY, to Rs. 1910 Cr, in line with our estimate.
Segment-wise, Pantaloons’ revenue growth was ~11 percent & Madura Lifestyle brands 6 percent.
The profit after tax came at Rs 5.6 crore against Rs 20.3 crore net loss YoY.
Going ahead, the management will focus on margin expansion and SSG levers in Pantaloons. To achieve this, Pantaloons will focus on –
Strengthening its private-label mix by improving its price-value proposition.
Network expansion – adding 40-50 stores a year.
Improving brand influence by increasing advertisement spends.
Improving in-store (and online) shopper experience.
After achieving Rs 100 crore turnover in the first full year of operation, management expects its innerwear division to grow 2x in FY19 to Rs 200 crore, driven by its foray into women’s innerwear and rapid expansion in the number of points of sales.
The company reported an income growth of 28.6 percent in its Q1-FY19 standalone results at Rs 1,925 crore as against Rs 1,498 crore in Q1FY18. The company’s loan book grew 23 percent to Rs 55,390 crore in Q1-FY19 as against Rs 45,150 crore in Q1-FY18.

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