Street gave a thumbs down to Aditya Birla Fashion and Retail (ABFRL)-TCNS Clothing deal as analysts flagged near-term profitability risks for ABFRL with its latest acquisition. At the bourses, shares of the Aditya Birla group company tumbled 6.2 per cent in the intra-day trade, before settling 3.27 per cent lower at R 207.2. Those of TCNS, meanwhile, plunged 20 per cent to end at Rs 416.64.
In a major expansion into sportswear and lifestyle wear segment, the Kumar Mangalam Birla-led Aditya Birla Fashion & Retail has signed a long-term licensing agreement with Authentic Brand Group of New York, which has the marketing and branding rights of Reebok, to run the operations of the global sportswear, athletic and lifestyle major in the country and ASEAN markets. The new agreement between the largest domestic multi-brand fashion retailer and Authentic Brand is an extension of their existing relationship as ABFRL already markets and sells some ABG brands like Forever 21. The agreement follows the global transfer of ownership of the Reebok brand from Adidas to ABG, which is expected to close in the first quarter of 2022.
The retail industry witnessed robust top-line growth for the greater part of the previous financial year, but demand has started to show signs of fatigue seen in the January-March quarter (fourth quarter, or Q4) of 2022-23 (FY23), especially in the apparel and innerwear segments. Jewellery, however, has managed to hold on to demand in the quarter. "In the discretionary space, demand moderation in urban markets is expected to impact the quick-service restaurant and apparel categories the most, while paint, luggage, and jewellery should see resilient growth," Systematic Institutional Equities observed in its preview of the sector.
Notwithstanding the inflation pinch, analysts believe the Indian retail sector is on the 'cusp of accelerated earnings growth' as consumer sentiment and discretionary purchases bounce back from the Covid-19 pandemic. "The shift in consumer preference from the unorganised sector to the organised, coupled with uptick in domestic demand as people resume work from office, will cheer the Indian retail sector," says Nishit Master, portfolio manager, Axis Securities. Shopping malls are witnessing increased footfall in lower tier towns and standalone stores as consumption picks up and mobility improves.
The stock of Aditya Birla Fashion Retail is down 10 per cent from its February high. Even as the revenue performance of the apparel retail major in the October-December quarter's for the 2022-23 financial year (Q3FY23) was better than expected, the company saw brokerage downgrades, given the weak operating performance and the pressure on margins. This the second consecutive quarter of margin miss despite strong traction on the sales front.
Led by Trent, which hit its lifetime-high recently, apparel retailers have gained between 10 per cent and 36 per cent over the past three weeks. Given the network of physical stores, these stocks shall be major beneficiaries of the unlock theme, with most states doing away with Covid restrictions. Amid improving footfall, analysts expect the sector to post double-digit growth in FY23.
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