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June 2020
Disaccounting/
Inventory
Write-off
Perfect storm
Research Analysts:
Ritesh Gupta, CFA
ritesh.gupta@ambit.co
Tel: +91 22 6623 3242
CONTENTS
Credit and jobs under pressure, consumer behavior may change ……………6
COMPANIES
Macro pain would aggravate post Covid Source: Ambit Capital research, Bloomberg
Consumption growth had started to slow down even pre-Covid. While job
creation was slow, increase in credit (cards, personal loans) supported Titan ranks lowest while ABFRL and PVR
rank highest on our risk framework
consumption. Banks have already started to cut credit card limits; lifestyle
spends accounted for 12% of overall CC spends. Pay cuts and job losses have Earnings Balance Valuation
Company
risk sheet risk risk
accelerated and retail credit availability has been squeezed. Cost cutting and
broader slowdown will also impact various SMEs and self-employed. Top 10 Titan Low Low Low
cities (50%+ of revenues) are slowest to recover, delaying recovery and pain. Trent Moderate Low High
JUBI Moderate Low Moderate
Covid will have an impact across the board ABFRL High High Moderate
Impact on various discretionary categories may not be very different: limited PVR High High Moderate
social interactions and increased WFH trends may hit apparel, QSR and Relaxo Low Low High
footwear players. Ability to cater to limited footfalls in peak hours due to social
Bata Moderate Low High
distancing would also hit throughput for DMart and PVR. We expect 1QFY21 to
Page Ind. Moderate Low High
be largely a washout with gradual recovery from 2HFY21; absolute revenue
growth to be weak until 2HFY22. Higher costs of sanitization and staggered DMart Low Low High
store timings would increase operational cost. Cut in rentals/employee & other Source: Ambit Capital research
costs may not be good enough to turn green in FY21. Slower store rollouts and
even slower retail space developments would hurt medium-term growth.
Market share gains would be delayed for two years; focus on survivors
Lower rental and employee cost inflation imply better store expansion potential
beyond FY22 for Titan/Trent/Jubilant/DMart and drive market share gains. But
near-term earnings pain and rich valuations drive us to downgrade DMart.
Titan remains our top pick given rise in gold prices typically tends to support
profitability growth, and valuations have turned reasonable. We prefer Trent for
strong store economics, loyal customer base and rapid store scale-ups (50%
store count growth over FY19-21).
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Consumer Discretionary
Narrative in charts
Consumer confidence index is at decade low Spending on grocery has increased the most while
lifestyle/apparel have been worst affected
Spends before Spends during
Spend Category
Current Situation Index Future Expectations Index lockdown lockdown
150 Grocery/Stores 30.7% 47.5%
Fuel/Cab 13.4% 7.4%
130 Lifestyle/Apparels 11.7% 3.7%
Telecom/Utilities/Education 10.0% 14.2%
110 Wallet Load 9.8% 6.9%
Health/Insurance 8.2% 12.4%
90 Travel 4.4% 0.3%
Dining/Food Delivery 3.5% 1.1%
70 Durables 3.3% 2.9%
Hotel 1.4% 0.3%
50
Entertainment 1.5% 2.4%
Aug-11
Aug-18
Mar-12
Oct-12
May-13
Nov-16
Jun-17
Mar-19
Oct-19
May-20
Jan-11
Dec-13
Jul-14
Feb-15
Sep-15
Apr-16
Jan-18
Consumer debt on credit cards has grown at 29% CAGR Consumer debt on personal loans has grown at 24% CAGR
over FY15-20 over FY15-20
Credit cards (Rs bn) Growth (RHS) Other personal loans (Rs bn) Growth (RHS)
1,200 45% 8,000 35%
40%
1,000 7,000 30%
35%
6,000 25%
800 30%
5,000
25% 20%
600 4,000
20% 15%
400 15% 3,000
2,000 10%
10%
200 5%
5% 1,000
0 0% 0 0%
FY15
FY16
FY17
FY18
FY19
FY20
FY15
FY16
FY17
FY18
FY19
FY20
Apr'20
Apr'20
Source: Company, Ambit Capital research Source: Company, Ambit Capital research
Decline in income levels would be steep due to Covid- Job losses across start-ups are significant
related pay cuts; table below is for a relatively insulated
industry with only 10% salary cut – we fear the cuts have
Layoffs from March 25 - May 20, 2020
been much higher in other industries
FY20 FY21 FY22 Oyo*** 5000
Source: Company, Ambit Capital research, Numbers are based to 100. Source: Economic Times, Ambit Capital research, * media reports; **
contract workers; *** since Jan’20
Covid impact screen - Relaxo and Titan have better defensibility to demand
Earnings risks due
Exposure to top -10 Share of Threat of
Gross margin risks to slowdown in
cities malls online
store rollout
Avenue Supermarts Limited High (due to weaker mix) Low Medium High
Titan High No (some discounting possible though) Medium Medium Low
Bata Medium High (due to downtrading) Medium Low High
Relaxo Low Low (RM benefits) Low Low Low
Page Medium Medium (due to downtrading) Low Low Medium
ABFRL High High (due to inventory risks) High High High
Trent High High (due to inventory risks) Medium High Medium
Jubilant Foodworks Medium Low Medium Medium Low
PVR High Low High High Medium
Source: Company, Ambit Capital research
Recovery would have three key elements: Reopening of stores, psychological sentimental revival for consumers and
economic revival
Phase 2: Psychological barrier (Jun – Dec Phase 3: Economic Slowdown (Dec 2020 –
Phase 1: Reopening (May - Aug 2020)
2020) Dec 2021)
Overall Framework: Titan, Jubilant, Avenue Supermarts, Trent and Relaxo are the businesses we like; unfortunately most
of them haven’t seen much correction barring Titan
Short Term Longer Term Valuation
Overall
disruption attractiveness correction/attractiveness
Avenue Supermarts Medium High Low Medium
Titan Medium High High High
Bata High Medium Low Low
Relaxo Medium High Low Medium
Page High Medium Low Low
ABFRL High Low High Low
Trent High High Medium Medium
Jubilant Foodworks Medium High Medium Medium
PVR High Low High Low
Source: Company, Ambit Capital research
Sep-12
May-14
Oct-14
Mar-15
Jun-16
Nov-16
Sep-17
May-19
Oct-19
Mar-20
Dec-18
Jan-11
Apr-12
Feb-13
Dec-13
Jul-13
Jan-16
Apr-17
Feb-18
Jul-18
Exhibit 2: Spending on grocery has increased the most while Exhibit 3: The formal job market has witnessed steep
lifestyle/apparels have been impacted the most decline in job creation
Spends before Spends during
Spend Category
lockdown lockdown
40%
Grocery/Stores 30.7% 47.5%
Aug-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Sep-19
Oct-19
Dec-19
Nov-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Cash/Quasi Cash 1.4% 0.0%
Others 0.6% 0.9%
Total 100.0% 100.0%
Source: Ambit Capital research, RBL Bank Source: Infoedge, Ambit Capital research
Exhibit 4: Consumer debt on credit cards has grown at 29% Exhibit 5: Consumer debt on personal loans has grown at
CAGR over FY15-20 24% CAGR over FY15-20
Credit cards (Rs bn) Growth (RHS) Other personal loans (Rs bn) Growth (RHS)
1,200 45% 8,000 35%
40% 7,000 30%
1,000
35% 6,000 25%
800 30% 5,000
25% 20%
600 4,000
20% 15%
3,000
400 15% 10%
2,000
10%
200 1,000 5%
5%
0 0% 0 0%
FY15
FY16
FY17
FY18
FY19
FY20
Apr'20
FY15
FY16
FY17
FY18
FY19
FY20
Apr'20
Source: Company, Ambit Capital research Source: Company, Ambit Capital research
Exhibit 6: Total retail credit to GDP has risen to 17% Exhibit 7: Households financial liabilities to GDP rose
steeply in the last few years
16%
6% 3.4% 3.4% 3.4% 3.4%
3.3% 3.3%
14% 3.2%
5%
3.0%
12% 3.0%
4%
10%
8% 3%
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Source: RBI, Company, CEIC, Ambit Capital research Source: CEIC, Ambit Capital research
7% 40% 5.8
Employee growth for NSE
6.1%
Unemployment rate
5.8%
5.8% Job loss/additions in
April 2020 (in mn)
6% 30%
500 (YoY change)
5% 20%
3.8% -91.3
10%
Farmers
Salaried
and Labourers
Entrepreneurs
3.7%
Small Traders
4%
0%
3%
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY74
FY94
FY00
FY05
FY10
FY12
FY18
FY19
Source: NSSO, Ambit Capital research Source: Ace equity, Ambit Capital research Source: CMIE, Ambit Capital research
Exhibit 11: Investment engine has been slow to grow, Exhibit 12: Private consumption growth has been slowing
leading to pressure on jobs creation over past few years despite rise in household debt
60%
Nominal YoY growth
Consumption to GDP
33%
60% 59% 15%
58% 31%
58% 10%
29%
56%
56% 5%
55% 27%
54% 25% 0%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: CEIC, Ambit Capital research Source: CEIC, Ambit Capital research
The crisis has engulfed even top players, such as The Times Group, the Indian Express Group, Hindustan Times Media
Limited, Business Standard Limited and the Quintillion Media Private Limited, which runs the website, The Quint.
Job losses, pay cuts, editions The Times Group announced salary cuts for its print publication Times of India, The Economic Times and Navbharat
shut — coronavirus triggers Times. It said there will be a salary reduction between 5% and 10% from 1 April.
new crisis for Indian media Later, news channel NDTV too announced salary cuts between 10% and 40% from April 1 for three months. The pay cut
is applicable for employees earning more than Rs50,000 per month.
The Hindustan Times has made changes to the salary component of its employees by diverting a percentage of fixed pay
to the variable component, which is linked to the company’s performance.
Job Loss From Covid To Be
‘Much Worse’ Than In 2008: Only 19,500 companies in India have a paid-up capital of more than Rs100mn, Sabharwal said. Out of the 63mn
TeamLease’s Manish enterprises, only 12 million are registered for Goods and Services Tax and only 1 million pay social security, he added.
Sabharwal Lockdowns would clearly impact the ability of these organizations to pay salaries consistently.
Retailers Association of India (RAI) had conducted a survey of 768 retailers, which employ 3,92,963 people across India,
Covid Lockdown: Retailers to gauge their view on the impact of Covid on their business and manpower.
expect around 80,000 job "Small retailers are expecting to lay-off 30 per cent of their manpower going forward, this number falls to 12 per cent for
losses, says survey medium (sized) retailers and 5 per cent for large retailers. On the whole, retailers who responded to the survey expect
layoff of about 20 per cent of their manpower,"
Zomato is also laying off 13% of their staff. They will pay half salaries for next 6 months for employees laid off.
On the jobs front, about 52% of the companies surveyed foresee job losses, in their respective sectors. While the
52% of firms expect job losses
proportion of jobs that are expected to be cut are quite staggered, 47% expect less than 15% job loss and 32% of the
due to Covid, finds CII poll
companies expect to shed 15-30% of jobs once the lockdown ends.
Multiple internet businesses — including Oyo, BlackBuck, Treebo, Acko, Fab Hotels, Meesho, Shuttl, Capillary, Niki.ai,
Swiggy and Fareportal — have on average cut workforce by 30%, including temporary staff, in the past one month.
Many others, such as Ola, Zomato, Zoomcar, MakeMyTrip, Chaipoint, Cashify, and Livspace, have reduced pay by as
Flood of pink slips coming, much as 50%, while a few have withdrawn job offers.
warn start-ups Technology start-ups are likely to cut hundreds of jobs over the next 6-8 months, as demand stutters amid tight funding,
top venture capitalists and founders told ET.
Much of the layoffs will stem from distress sales and company closures, the people said. “We are going to see a
continuous layoff for the next 12 months... Most companies have done one round of layoffs already
The Indian tourism and hospitality industry is staring at a potential job loss of around 38 million, which is 70% of the total
India’s Covid lockdown may workforce,” due to Covid, a report by KPMG, said.
cause 38 million job losses in If this trend continues as the Covid crisis progresses, it will be a setback for national employment. The sector accounts for
the travel and tourism industry 12.75% of employment – 5.56% of it is direct and 7.19% indirect. Over 87 million people were employed in the tourism
industry in 2018-’19, according to the ministry of tourism’s annual report for 2019-’20.
Airlines staring at 2.9mn job With the coronavirus crisis bringing the global aviation industry to a grinding halt, India could witness a drop of 47%
losses, 47% drop in demand passenger demand in a year. This will put 2.9 million jobs at risk as per IATA.
1.5 lakh employees in India's IT industry might lose their jobs over the next three-to-six months. Majority of these layoffs
1.5 lakh IT professionals might
will happen in small IT firms, said HR experts. The industry employs about 450-500mn, of which smaller firms account for
lose jobs due to Covid
about 100-120mn.
Source: Company, Ambit Capital research
Job losses and salary cuts endured by Indians in 2008 could look like a “minor hiccup”
compared to what Asia’s third largest economy will have to face if disruptions caused
by the Covid pandemic continue.
Manish Sabharwal – CEO of Teamlease, India’s largest staffing company
Exhibit 14: Decline in income levels would be steep due to Exhibit 15: Job losses across start-ups are significant
Covid-related pay cuts; table below is for a relatively
insulated industry with only 10% salary cut – we fear the
cuts have been much higher in other industries
FY20 FY21 FY22
Pre-Covid 100 110 121 Layoffs from March 25 - May 20, 2020
Fixed 90 99 109 Oyo*** 5000
Variable 10 11 12
Udaan** 3000
Post-Covid 95 85 99
Ola 1400
Fixed 90 81 89
Variable 5 4 10
Swiggy 1100
Decline in income -5% -23% -18% Curefit* 800
Source: Company, Ambit Capital research, Numbers are based to 100. Paytm* 700
Zomato 520
Livespace 450
Sharechat 101
Fortune 500 CEO Poll conducted between week of 23rd April and 4th May 2020
Some interesting insights worth highlighting
L shaped recovery seems to be consensus (77.4% feel recovery is beyond
1Q2022)
26% feel at least 10% of the workforce may “never” return to the “workplace”,
51% feel business travel may “NEVER” return to pre-Covid levels
~44% have laid off employees, 7% have been hiring, 50% of CEOs have agreed
to a compensation cut
43% feel capex spending may not return to 2019 levels before 2022 (~5% feel We believe the economic pain
“NEVER”) would aggravate over FY21 as
normalcy gets delayed and we
expect FY22 vs FY20 MoM growth
Exhibit 16: Retail SSGs accelerated over FY16-19, but had already started to moderate rates to start reporting positive
a bit in 9MFY20 barring Trent as broader consumption started to slow down growth only from mid of FY22
SSG FY15 FY16 FY17 FY18 FY19 9MFY20
Trent- Westside 11% 8% 9% 9% 9% 12%
Madura 1% 0% -5% 9% 5% 8%
Pantaloons 5% 6% 5% -3% 1% 6%
FLFL- Central 8% 10% 18% 10% 6% 6%
FLFL- Brand Factory 17% 16% 14% 4%
Shoppers Stop 5% 9% 3% 2% 4% 2%
Titan- Jewellery 1% -7% 19% 25% 16% 7%
Jubilant 0% 3% -2% 14% 16% 5%
Westlife- McDonalds -6% 2% 4% 16% 17% 8%
TCNS 18% 27% 9% 8% -3% 2%
DMart 22% 21% 21% 14% 18% NA
Source: Company, Ambit Capital research. We have taken 9MFY20 numbers to exclude the impact of Covid.
Exhibit 18: Retail and recreational activity at Top-15 states are at below 50% pre-
Covid level (barring Bihar) as per Google mobility data
Maharashtra
Telangana
Karnataka
Rajasthan
Pradesh
Madhya
Pradesh
Pradesh
Andhra
Gujarat
Odisha
Bengal
Punjab
Kerala
Uttar
West
Nadu
Tamil
Delhi
Bihar
0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
-80%
Retail and recreation mobility changes
-90%
Source: Ambit Capital research, google, Note - Mobility trends are for places such as restaurants, cafés,
shopping centres, theme parks, museums, libraries and cinemas.
Exhibit 19: Recovery would have three key elements: Reopening of stores, psychological sentimental revival for consumers
and economic revival.
Phase 2: Psychological barrier (Jun – Dec Phase 3: Economic Slowdown (Dec 2020 –
Phase 1: Reopening (May - Aug 2020)
2020) Dec 2021)
Exhibit 20: Companies with higher share of high street and non-metros would benefit: With the national lockdown and work-
Avenue Supermarts, Trent, and Relaxo may recover faster from-home, people will order more
Number of cities Share of high street online, keep off from malls and the
high street stores for a certain short
Presence in ~69 cities but cities present in is a High (Most of the stores are on
Avenue Supermarts
good mix of Metros and non-Metros high street) term period. It may take some time for
people to feel comfortable again with
Titan Tanishq has presence in ~ 200 cities Mixed (Nearly Equal)
visiting public spaces. As such, e-
Jubilant Foodworks Jubilant Foodworks has presence in 282 cities High (Malls are less than 30%) commerce will emerge and come to
Trent Westside has presence in 76 cities High (Malls are 40%) the forefront for fashion retailers.
Madura is present across 750 cities while
ABFRL Malls’ share is high
Pantaloons is present in 130 cities
Sandeep Kataria, Bata India CEO
Bata Present in ~450 cities High street share is high
Presence across most of the towns in North and High street/Traditional multi
Relaxo
West; South and East they are building up brand footwear stores
PVR Presence in 69 cities Mall-based completely
Exhibit 21: Store expansions would get delayed and net store additions may turn out
to be negative hurting growth for retailers across the board
SSG Store expansion
Company
FY17 FY18 FY19 FY17 FY18 FY19
Avenue Supermarts 21% 14% 18% 19% 18% 14%
Titan (Tanishq) 19% 25% 16% 8% 22% 12%
ABFRL (Lifestyle) -5% 9% 5% 1% 7% 10%
ABFRL (Pantaloons) 5% -3% 1% 28% 32% 12%
Trent (Westside) 9% 9% 9% 15% 17% 20%
Jubilant Foodworks -2% 14% 16% 9% 2% 8%
PVR 8% 16% 13% 12% 8% 22%
Westlife Development 4% 16% 17% 9% 7% 7%
Source: Company, Ambit Capital research
Recovery faster for some but growth revival may take Sandeep Kataria, Bata India
CEO
similar time across categories It is inevitable that stores that had
We believe apparels/footwear/multiplexes will be impacted the most given limited lower performance during the pre-
social and work interactions. Multiplexes will be the last ones to recover as consumers Covid period will feel the impact of
will avoid crowded places. Footwear/apparel may not see much need for customer lower footfalls post-Covid, and we
will evaluate these stores case by
visits as need to dress up has declined meaningfully. Most continue to work from
case. The good news for a company
home (WFH) or reduce their visits to office and continue to cut casual social like Bata is that we have a very
interactions. This category would also be most exposed to higher shift to online, broad portfolio and are in a unique
which already has 10% overall market share. Grocery retailers like DMart may face position to service the consumer
difficulty in accommodating the same number of footfalls as before Covid until the needs. However, owing to the
situation normalizes. Shift to online is a risk here too. Food ordering can current situation, there is certainly a
meaningfully increase and share of trusted food/QSR brands is bound to go up vs need for us to revisit our expansion
random mom-pop restaurants that may not be able to assure hygiene. However, out- plan.
of-home eating and loss of ordering at office/social interactions may not be made up
by such shifts for the shorter term.
Just yesterday, I received a series of promotional SMSs from various clothing brands in India, announcing that they were now
delivering online orders nationwide. This was followed by messages from food joints declaring safe and contactless delivery
to your doorstep. In that moment, I was pleasantly surprised to realize that I hadn’t once thought of or missed online
shopping, or dining out in the last 3 months – an activity which is otherwise a regular indulgence in today’s lifestyle.
Far from home, my only thought and desire has been to reunite with my family and enjoy simple home cooked meals. This
realization got me thinking, how many such things has been part of my everyday life just because they’re easily available,
but not something I really needed? Today’s modern lifestyle is centred around consumerism and we’ve all fallen prey to it.
Buying that is focused on luxury rather than need; availing services like hospitality, entertainment, spas because they’re
accessible and affordable; opting for international brands over locally made products; the list is endless. During the
lockdown, my family and I have been happy and content in living with only the essentials. Back home, my wife and son have
even found ways of using groceries and ration more efficiently since procuring them is not as easy in these times.
Footwear and Apparels are most vulnerable. Not only will these segments see
inventory write-offs/mark-downs over FY21 but also continue to witness shift to
online. In addition, growing share of work from home and reduced social interaction
may continue to impact both formals and casual wear products.
Exhibit 23: Covid will have impact on consumption across the categories
Positives Negatives
Higher discounting to liquidate inventories
Long-term opportunity to shift from
Work from Home/lesser trends of going out-of-home trends to reduce
Apparels unorganised to organised and potential for
formal wear purchases
double-digit market growth to continue
Prone to online shift
Long-term opportunity to shift from
unorganised to organised Higher share of EOSS due to unsold inventories
Footwear
Considerable opportunity given average Reduced purchases of closed footwear
number of pairs held is only 2 as of now
Pent-up demand as product continues to get People may postpone their purchases for some time
Innerwear
used even within lockdown period Down-trading too is a possibility
Exhibit 26: We have materially cut our FY21 estimates to incorporate the impact of
lockdown
FY21E FY22E
Rs mn
New Old Change New Old Change
Rating BUY BUY UNCHANGED
Target price (Rs) 725 640 13%
Revenue 21,373 37,444 -43% 41,198 48,799 -16%
EBITDA 1,895 5,960 -68% 7,752 9,506 -18%
Trent
EBITDA margin 8.9% 15.9% -700bps 18.8% 19.5% -70bps
PBT -1,053 2,501 -142% 3,478 5,629 -38%
PAT -788 1,872 -142% 2,602 4,212 -38%
EPS (Rs) (2.2) 5.3 -142% 7.3 11.9 -38%
Rating SELL BUY DOWNGRADED
Target price (Rs) 125 211 -41%
We turn SELLers on ABFRL on
Revenue 56,724 93,086 -39% 79,769 108,507 -26%
account of earnings risk given
EBITDA 1,909 1,891 1% 7,308 10,654 -31%
ABFRL
EBITDA margin 3.4% 2.0% 140bps 9.2% 9.8% -60bps
high fixed cost and potential
PBT -2,300 -1,956 18% 3,737 6,811 -45%
consumer behavior changes post
PAT -1,721 -1,467 17% 2,797 5,108 -45% Covid. Balance sheet will remain
EPS (Rs) (2.0) (1.9) 7% 3.3 6.6 -50% stretched with net debt: EBITDA at
Rating SELL SELL UNCHANGED ~3.5x post rights issue as well.
Target price (Rs) 15,500 15,150 2%
Revenue 20,988 28,209 -26% 31,941 33,437 -4%
Page EBITDA 2,288 4,309 -47% 6,799 5,968 14%
Industries EBITDA margin 10.9% 15.3% -440bps 21.3% 17.8% 350bps
PBT 1,456 3,928 -63% 5,958 5,568 7%
PAT 1,089 2,939 -63% 4,459 4,167 7% We turn SELLers on PVR due to
EPS (Rs) 97.7 263.5 -63% 399.7 373.5 7%
balance sheet risk and poor
Rating SELL BUY DOWNGRADED
visibility of revenue over the 12-
Target price (Rs) 900 2,220 -59%
18 months. RoE will fall to 9% in
Revenue 7,987 43,690 -82% 30,032 50,563 -41%
FY23 (post normalization of
EBITDA -889 14,477 -106% 9,758 16,854 -42%
PVR Covid) due to cash burns
EBITDA margin -11.1% 33.1% -4420bps 32.5% 33.3% -80bps
PBT -8,548 3,386 -352% -422 4,766 -109%
PAT -5,727 2,203 -360% -316 3,566 -109%
EPS (Rs) (104.7) 45.9 -328% (5.8) 74.4 -108%
Rating SELL BUY DOWNGRADED
Target price (Rs) 600 700 -14%
Revenue 17,264 27,047 -36% 26,971 32,349 -17%
We turn SELLers on Relaxo on
EBITDA 2,120 4,718 -55% 5,253 6,100 -14%
Relaxo account of expensive valuations
EBITDA margin 12.3% 17.4% -510bps 19.5% 18.9% 60bps
and near-term threat to volume
PBT 949 3,562 -73% 4,149 4,902 -15%
PAT 710 2,666 -73% 3,105 3,668 -15%
growth
EPS (Rs) 2.9 10.7 -73% 12.5 14.8 -15%
Rating SELL BUY DOWNGRADED
Target price (Rs) 2,000 2,300 -13%
Revenue 246,820 325,003 -24% 341,772 401,358 -15%
We turn SELLers on DMart on
EBITDA 15,289 26,182 -42% 29,175 33,838 -14%
DMart account of expensive valuation
EBITDA margin 6.2% 8.1% -190bps 8.5% 8.4% 10bps
and near-term risks of lower
PBT 11,628 22,693 -49% 24,372 29,543 -18%
PAT 8,701 16,981 -49% 18,238 22,107 -18%
earnings led by lower throughput
EPS (Rs) 13.4 27.2 -51% 28.2 35.4 -21%
per sq ft due to social distancing
Rating BUY BUY UNCHANGED
measures
Target price (Rs) 1,950 2,000 -3%
Revenue 31,279 42,179 -26% 45,174 54,673 -17%
Jubilant EBITDA 5,870 9,757 -40% 11,041 13,776 -20%
Foodworks EBITDA margin 18.8% 23.1% -430bps 24.4% 25.2% -80bps
PBT 1,841 4,706 -61% 6,290 8,403 -25%
PAT 1,377 3,522 -61% 4,707 6,288 -25%
EPS (Rs) 10.4 26.7 -61% 35.7 47.6 -25%
Source: Ambit Capital research, Company
DCF-based valuations
We continue to believe that earnings growth over FY19-23 period would be slower
than seen over the last decade given weaker economic growth impacting overall
consumer sentiment, income growth and discretionary spends. While we build in the
best for most of these companies, we believe the next few years’ growth challenges
may bring these stocks closer to their fair value.
Exhibit 27: Key assumptions for our coverage companies: Revenue CAGR over FY19-23 to be weak vs previous decade
Revenue CAGR EBIT CAGR TV as % of
Ambit estimate overall
FY09-19 FY19-23 FY23-33 FY33-40 FY23-40 FY09-19 FY19-23 FY23-33 FY33-40 FY23-40 value
ABFRL NA 2% 9% 8% 9% NA 20% 14% 10% 12% 34%
Trent (Standalone) 18% 19% 15% 11% 13% NA 44% 21% 13% 18% 45%
Page Industries 27% 7% 15% 11% 13% 29% 5% 17% 11% 14% 42%
Titan 17% 12% 16% 14% 15% 23% 9% 20% 17% 19% 55%
Bata 11% 2% 12% 9% 11% 20% 6% 18% 10% 15% 38%
Relaxo 19% 8% 15% 13% 14% 24% 19% 19% 13% 17% 38%
DMart 42% 21% 18% 13% 16% 45% 20% 19% 13% 16% 71%
PVR 23% 4% 15% 11% 14% 24% 10% 22% 13% 18% 47%
JUBI 29% 10% 14% 11% 13% 40% 21% 17% 12% 15% 42%
Source: Ambit Capital research, Company, Bloomberg
Exhibit 28: Reverse DCF: Relaxo, Jubilant and Trent appear to be the most mispriced stocks
Revenue CAGR EBIT CAGR TV as % of
Reverse DCF overall
FY09-19 FY23-33 FY33-40 FY23-40 FY09-19 FY23-33 FY33-40 FY23-40 value
ABFRL NA 10% 7% 9% NA 15% 9% 12% 32%
Trent (Standalone) 18% 14% 10% 13% NA 20% 12% 17% 45%
Page Industries 27% 17% 13% 16% 29% 19% 13% 17% 46%
Titan 17% 17% 13% 15% 23% 21% 15% 19% 53%
Bata 11% 16% 11% 14% 20% 22% 12% 18% 43%
Relaxo 19% 15% 10% 13% 24% 19% 11% 15% 32%
DMart 42% 21% 17% 19% 45% 22% 17% 20% 76%
PVR 23% 16% 12% 14% 24% 22% 13% 19% 47%
JUBI 29% 14% 10% 12% 40% 17% 11% 14% 39%
Source: Ambit Capital research, Company, Bloomberg
Exhibit 30: Jubilant has undergone multiple re-rating Exhibit 31: …GM improvement and expectations on
which was led by… improvement in SSG
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company
Exhibit 32: Titan’s earnings multiple re-rating is led by… Exhibit 33: …improvement in jewellery EBIT margin
90
TTM P/E 3yr avg LTL growth EBIT Margin (RHS)
80
70 80% 16%
60 60% 14%
50 40% 12%
40 10%
20%
30 8%
0%
6%
20 -20% 4%
10 -40% 2%
0 -60% 0%
Aug-11
Aug-18
Jun-10
Oct-12
May-13
Nov-16
Jun-17
Oct-19
May-20
Jan-11
Mar-12
Dec-13
Jul-14
Feb-15
Sep-15
Apr-16
Jan-18
Mar-19
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
4QFY18
2QFY19
4QFY19
2QFY20
4QFY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company
Exhibit 34: DMart’s TTM valuations should correct given Exhibit 35: …led by strong LTL growth and improving
weaker earnings growth (vs. past) over next two years; its sales per sq ft (barring FY20)
valuation has remained rich…
Aug-18
Aug-19
Jun-17
Jun-18
Jun-19
Jun-20
Oct-17
Dec-17
Feb-18
Apr-18
Oct-18
Dec-18
Feb-19
Apr-19
Oct-19
Dec-19
Feb-20
Apr-20
-5%
FY15 FY16 FY17 FY18 FY19 FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company
Exhibit 36: Trent has traded at rich multiple and has de- Exhibit 37: …led by increase in losses from subsidiaries
rated in the last 3 years… and JVs and profit normalization of core business
90 TTM EV/EBITDA 3yr avg Share of loss from subsidiaries and JVs
80
0
70
60 (100)
50
40 (200)
Rs mn
30 (300)
20
10 (400)
0 (500)
Jun-15
Oct-15
Jun-16
Oct-16
Jun-17
Oct-17
Jun-18
Oct-18
Jun-19
Oct-19
Jun-20
Feb-16
Feb-17
Feb-18
Feb-19
Feb-20
(600)
FY16 FY17 FY18 FY19 FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Share of loss from subsidiaries
and JVs = Consolidated PAT – Standalone PAT
Exhibit 38: ABFRL EV/EBITDA multiple has normalized back Exhibit 39: …led by concerns around leverage
to its previous valuations
Nov-16
Mar-17
Nov-17
Mar-18
Nov-18
Mar-19
Nov-19
Mar-20
Jul-16
Jul-17
Jul-18
Jul-19
0 -
FY19 FY20 FY21E
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Exhibit 40: Page’s P/E multiple has remained Exhibit 41: …led by poor volume growth
rangebound...
120 TTM P/E 3yr avg Volume (mn pcs) Volume growth
200 30%
100
25%
80 150 20%
60 15%
100
40 10%
20 50 5%
0%
0
0 -5%
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Exhibit 42: PVR’s EV/EBITDA multiple has de-rated Exhibit 43: …led by lower occupancy rate and increasing
significantly… leverage
30 TTM EV/EBITDA 3yr avg Occupancy rate Net Debt/EBITDA (x) - RHS
39% 6
25 37% 5
20 35%
4
15 33%
3
31%
10
2
29%
5 1
27%
0 25% 0
Jun-10
Feb-11
Oct-11
Jun-12
Feb-13
Oct-13
Jun-14
Feb-15
Oct-15
Jun-16
Feb-17
Oct-17
Jun-18
Feb-19
Oct-19
Jun-20
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Exhibit 44: Bata’s P/E multiple has re-rated significantly… Exhibit 45: …led by improving gross margin
FY16
FY17
FY18
FY19
CY10
CY11
CY12
CY13
FY20 (LTL)
Jun-10
Oct-11
Jun-12
Oct-13
Jun-14
Oct-15
Jun-16
Oct-17
Jun-18
Oct-19
Jun-20
Feb-11
Feb-13
Feb-15
Feb-17
Feb-19
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Exhibit 46: Relaxo’s P/E multiple has re-rated Exhibit 47: …led by volume growth and improving gross
significantly… margin
40 50% 10%
5%
20
45%
0%
0
40% -5%
Jun-10
Feb-11
Oct-11
Jun-12
Feb-13
Oct-13
Jun-14
Feb-15
Oct-15
Jun-16
Feb-17
Oct-17
Jun-18
Feb-19
Oct-19
Jun-20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Exhibit 51: Page, Jubilant and Titan have best-in-class Exhibit 52: …however, reinvestment opportunity remains
RoE/RoCE… limited for Page
DMart
Relaxo
Relaxo
Foodworks
Bata
Bata
ABFRL
DMart
Trent
Trent
Titan
PVR
Titan
PVR
Industries
Industries
Foodworks
ABFRL
Jubilant
Jubilant
Page
Page
Source: Ambit Capital research, Company, Trent’s RoE appears lower due to Source: Ambit Capital research, Company. Trent’s RoCE appears lower due
investments in other Tata group companies, Star Bazaar and Zara India. to investments in other Tata group companies, Star Bazaar and Zara India.
Titan would benefit from higher gold prices and its positive impact on profitability.
Higher wedding share drives better pent-up demand in 2HFY21. Wallet share gains
within wedding budgets + better investment demand due to gold being a better asset
class would further boost sales recovery. In addition, two third of stores are on a
franchisee model, which reduces pressure on near-term profitability. The company
may also be able to gain market share from unorganized players that may not be
able to provide a similar hygiene assurance and digital convenience as Titan.
Jubilant would be able to protect itself from rising online order penetration (60% of
Jubilant’s sales) and consolidation in the food delivery market. Though, we believe
near-term growth would be surprise street expectations negatively given both dine-in
(35% of sales) and in-office consumption (nearly 25-30% of overall sales) would see
pressure. Lower high-street rentals would ensure better economics for new stores.
Fortressing strategy would further benefit overall customer satisfaction and gain share
from unorganized players who would face hygiene concerns from new customers.
Trent has been rapidly scaling up its offline stores before Covid happened, cracking
the profitability code for both Westside and Zudio (both provide attractive value price
points to its customers). The company has accelerated store expansions meaningfully
across all three fashion formats (Westside, Zudio, Utsa), adding about half of their
~250 fashion stores over FY19 and FY20. Attractive LTL for Westside (12.6% in pre-
Covid FY20) indicates the ability of older stores to support profitability despite rapid
expansion in a tougher period. While overall offline apparel market will face
challenges, we expect Trent to emerge stronger through this period given strong store
economics and well-funded balance sheet. Strong economics of Zudio and Westside
will only get better as rental inflation takes a hit beyond FY22.
Relaxo will benefit from raw material deflation tailwinds and recent price hikes taken
across the portfolio, which would still drive better earnings growth over FY20-22.
High exposure to open footwear (~80% of the overall sales) and a value offering
(ASP of Rs130) will support overall growth during 2HFY21/FY22 after witnessing
supply-side setbacks in 1HFY21. Relaxo also has better presence in online channel.
The company’s value offerings are popular on Amazon and account for top 10 out of
the top 20 high selling SKUs in footwear. However, valuations at 52x FY22 EPS are
rich and already factor in 18% EPS CAGR for the company over the next decade.
ABFRL, we believe, may witness sales pressure on Pantaloons and higher priced
products across Madura. Decline in sales over a high fixed cost base would drive
much lower profitability. ABFRL may emerge winner through this Covid period if it is
able to rationalize its high cost structure (heavy A&P spends, expansion into multiple
non-profitable lines of business such as fast fashion, innerwear, ethnic (Nikhil &
Shantanu, Jaypore), etc.). It has fixed/variable costs of ~ Rs40bn in FY20 on a
Rs45bn gross profit base. With revenues gone for nearly a quarter and likely to
decline throughout the year, the extent of cash losses can be meaningful given higher
operational (as discussed earlier) as well as interest costs (~Rs21bn in FY20). The
risks of a high cash burn (~9% dilution for Rs10bn rights issue) still remain
reasonably high till the time we see concrete actions on costs reduction. Assuming
cash burn of ~Rs10bn, we believe even if the company were able to retain its net
debt at similar level as FY20, it would mean a net debt to normalised pre-Covid
EBITDA of ~4x. At cash burn of ~Rs5bn, net debt: EBITDA would still be ~3.3x
unless underlying EBITDA improves meaningfully over and above pre-Covid levels.
Page: Struggle on volume growth continues. 4Q/FY20 volumes declined 18%/3%
partly also to do with COVID. Sales declined 11% in 4QFY20 (4% after Rs900mn
mgmt. estimated COVID impact, 4QFY19 was flat YoY). Growth is largely led by
realization/mix changes 7%/ 12% for 4Q/FY20 which may peak out at some point in
time. Gross margin drop of 480bps YoY was a bit worrisome for 4QFY20 despite
lower incentives (down 20% YoY). While Page will benefit from higher sales of
outerwear (aided by increased WFH) and increased consumer preference for MBO
channel (where Page is strong), annual pricing growth of 3-5% may be difficult to
come by and volume challenges on innerwear side may continue amidst
economically weak environment. We build in 6%/11%/14% sales/EBITDA/PAT growth
CAGR over FY20-FY22 implying valuations of 48x FY22 EPS at CMP. Reducing
productivity of incremental MBO outlets, consistent stretching of pricing power and
limited success in recently incubated new categories are challenges to volume growth
and the valuations. Reiterate SELL.
Bata: We believe margin levers which drove sharp earnings growth over FY16-20
are largely coming into the base. We expect sales growth of 8-10% over the next
decade (nearly half of other discretionary peers) which should drive the valuation
discount for the business.
DMart: We like everything about the business as discussed in our Jan-15 thematic.
The only problem is valuations (stock has run up ~25% since our thematic despite the
sharp earnings cut we had to make due to Covid) which are rich at 84x FY22E EPS
and build in 22% EBIT CAGR over FY23-33. Either the stock corrects or DMart
demonstrates faster ability to expand number of stores.
PVR: While we don’t believe that OTT is a credible threat to PVR in the medium term,
we are incrementally worried about the burn that PVR would have to take to survive
this storm and uncertainty around return to normalcy. Two consecutive money raises
mean that RoE has come down to 8% in FY23 even when EBITDA normalises back to
pre-Covid levels.
Exhibit 53: Covid impact screen - Relaxo and Titan have better defensibility to demand
Earnings risks due
Exposure to top-10 Share of Threat of
Gross margin risks to slowdown in
cities malls online
store rollout
Avenue Supermarts Limited High (due to weaker mix) Low Medium High
Titan High No (some discounting possible though) Medium Medium Low
Bata Medium High (due to downtrading) Medium Low High
Relaxo Low Low (RM benefits) Low Low Low
Page Medium Medium (due to downtrading) Low Low Medium
ABFRL High High (due to inventory risks) High High High
Trent High High (due to inventory risks) Medium High Medium
Jubilant Foodworks Medium Low Medium Medium Low
PVR High Low High High Medium
Source: Company, Ambit Capital research
Exhibit 54: Long-term benefit screen - Trent, Jubilant, and Titan would be the long-term beneficiaries
Degree of
Balance sheet Market growth Market share Store Valuation
operating/financial
strength tailwinds growth potential economics attractiveness
leverage
Avenue Supermarts High Medium High High Medium Low
Titan High Low High Low (2/3 stores are franchisee) High Medium
Bata High High Low High Medium Medium
Relaxo High High High Low High* Low
High
Page High Medium Medium High* Low
(due to manufacturing staff)
Low (due to male
ABFRL Low Medium High Medium Medium
formals/casuals)
High (in female
Trent High High High Medium Low
fashion)
High (large through
Jubilant Foodworks High High entry into other High High Low
cuisines)
PVR Low Medium Medium High Medium High
Source: Company, Ambit Capital research. * They don’t have much retail footprint
Exhibit 55: Overall Framework - Titan, Jubilant, Avenue Supermarts, Trent and Relaxo are the businesses we like;
unfortunately most of them haven’t seen much correction barring Titan
Short Term Longer Term Valuation
Overall
disruption attractiveness correction/attractiveness
Avenue Supermarts Medium High Low Medium
Titan Medium High High High
Bata High Medium Low Low
Relaxo Medium High Low Medium
Page High Medium Low Low
ABFRL High Low High Low
Trent High High Medium Medium
Jubilant Foodworks Medium High Medium Medium
PVR High Low High Low
Source: Company, Ambit Capital research
Risks
Sharp cut in costs
Retailers typically have high amount of retail costs. An average retailer has 50% gross
margins but 12% employee costs, 12-13% rental costs and ~25% other variable/fixed
costs. We are building in a 30-40% reduction in overall costs though better-than-
expected cost control can surprise our estimates.
Sharper than expected recovery
Fast recovery in the economy led by rapid revival in consumer sentiment is a key risk
to our estimates.
Titan
(TTAN IN, BUY, TP: `1,150, 15% upside)
Titan is our top pick in consumer discretionary space given (a) gross margin
benefit from higher gold prices; (b) reducing discounts in jewellery (as visible
in 4QFY20) would further aid margins improvement; and (c) higher share of
franchisee model (65% of revenues) reduces impact of store-level losses due
to lower utilization. Demand impact too may be limited vs. other peers given:
(a) pent-up demand from delayed weddings in 2HFY21; (b) better consumer
sentiment to purchase gold given recent outperformance as an asset class;
and (c) initiatives to strengthen lower-priced products aid in increasing total
addressable market. Liquidity challenges and inability to allay customer’s
hygiene-related concerns may reduce unorganised players’ ability to
compete and would further aid Tanishq in gaining market share. Remain
BUYers on Titan with TP of `1,150 implying 15% upside. Key risks: Delay
caused by prolonged lockdown and social distancing measures in demand
for non-discretionary (wedding) purchase.
The good…
Benefitting from the big fat Indian wedding: Jewellery demand in India is largely
occasion based; wedding jewelry purchases make up 50% of the entire Indian jewelry
market while festivals/occasions (Dhanteras, Akshay Tritiya, anniversary, etc.) make
up a large part of the balance 50%. Both are largely non-discretionary in nature and
will be impacted the least despite the current scenario and slowdown in consumption.
In fact the consistent rise in gold prices may actually benefit the overall volume/sales
growth. Titan has low single digit market share in wedding segment; market share
gains here can help jewellery segment beat slowdown better. Wedding demand Kalyan Jewellers
continues to provide defensiveness; 1HFY21 would be a washout but things may start “We found that people were busy
improving from 2HFY21 as pent-up demand and delayed weddings normalize. in wedding-related purchases
GHS and gold exchange: Given growing interest in gold as a safe haven in these while at home. Expenses on
uncertain times alongside healthy returns in gold over last 12-18 months, GHS (gold outdoor activities, venue, feasts
investments SIP) has continued to gain traction (21% of sales already). Given lower and photoshoots, were almost zero
purchasing power in some consumer segments, gold exchange is also likely to be because of the lockdown, but they
strong lever for Tanishq given the consumer trust (linked to fair and transparent terms had the budgeted money and were
on exchange) enjoyed by the brand. Titan gets ~45% of its revenues from gold spending it on jewellery,"
exchange (33% third party gold and 10-12% Tanishq exchange).
Demand delayed but not denied: Demand for wedding and occasions to a large
extent will be postponed rather than completely lost. We also believe that the share
of jewelry as % of overall wedding expense can rise as people will cut decor/ wedding
venue rental/guests hospitality costs to meet social distancing norms, but they may
gift more in terms of gold.
Profitability levers are intact with gold price increase
Titan is likely beneficiary from a consistent rise in gold prices: While first
phase of gold prices makes consumers wait, prolonged period of gold price
increase drives volume demand improvement. Titan’s EBITDA was weak during
FY14-16 largely due to gold prices being weak/flattish. However, FY05-12 and
FY17-20, EBITDA growth has been structural amidst rising gold prices.
Recent gold price run-up benefits Titan’s revenue growth (decline in
grammage due to Covid impact would be mitigated by gold price growth) and
margins (as making charges are a % of sales).
More than 60% of stores are franchised, hence operational losses due to
poor absorption of fixed cost wouldn’t hurt Titan’s margin. Higher making
charges may support overall margins unlike other retailers where margins may
be impacted by inventory discounting.
Market share gains from FY21 as smaller jewelers face operational challenges
(hygiene concerns, limited offering on digital showcasing of product) may further
drive another period of topline outperformance as seen post GST. Government
focus on hallmarking (likely from FY22; implementation already delayed by a
year) too should drive better market share gains.
Exhibit 1: Jewellery strategy for FY21 would be to also focus on grammage growth
(grow the core initiative)
Source: Company
Exhibit 2: EBIT margin for Jewellery division is closely co-related to gold price and its
rising prices; EBIT margin tends to be better albeit with some lag
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
4QFY18
2QFY19
4QFY19
2QFY20
4QFY20
Given purchasing for Jewellery is less impulsive and more planned, Tanishq is inviting
customers by prior appointment for the recently reopened ~50 stores in 35 cities (out
of 328 stores). Management also stated (link) that they will not roll out any fresh
offers as they resume operations. Demand stimulation will need to happen only once
a large number of stores are open.
Exhibit 3: Jewellery division’s EBIT growth is closely co-related to gold price as well
though with some lag
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
4QFY18
2QFY19
4QFY19
2QFY20
4QFY20
…the bad
Luxury spends would get impacted: Non-discretionary spending on jewellery will
be severely impacted as conserving cash would take a toll on spending on luxury
items.
1HFY20 to be washout: Led by impact of lockdown during 1QFY21and 2QFY21
being seasonally the weakest quarter, we expect 1HFY21 to be washout for Titan.
Franchise may be under pain: Titan may need to support the franchisee partners
in terms of higher margin/schemes, higher ad spends and elongated credit period so
as to keep them afloat and their business running. This will impact Titan’s margins as
well as RoCE but will aid in better relationship building between Titan and franchisee
owners.
Exhibit 4: As gold price rises, volume tends to decline sharply
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
4QFY18
2QFY19
4QFY19
2QFY20
4QFY20
10% 15%
5%
10%
0%
5%
-5%
-10% 0%
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
RoCE may be impacted in the near term: Higher gold prices (implying higher Titan is our top pick in consumer
inventory) along with lower sales during FY21 will result in moderation in RoCE. discretionary given: a) consistent
Exhibit 7: High gold prices impact RoCE as well due to higher capital employed
rise in gold prices supports overall
revenues for Tanishq while making
charges move in line with
4,500 Gold price (Rs/gm) (LHS) Jewellery RoCE (pre tax) 50% revenues; b) pent-up weddings
would strongly support 2HFY21
4,000 40% growth; c) two-third of Tanishq
3,500 30% stores are franchised and hence
the higher operational costs
3,000 20% wouldn’t hit Titan’s P&L much. A lot
of costs in Titan’s books (such as
2,500 10% advertising) are discretionary and it
2,000 0% remains better positioned for
margin management.
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
Source: Ambit Capital research, Company
Exhibit 8: Titan’s earnings multiple re-rating is led by… Exhibit 9: …improvement in jewellery EBIT margin
Aug-18
Jun-10
Mar-12
Oct-12
May-13
Nov-16
Jun-17
Mar-19
Oct-19
May-20
Dec-13
Jan-11
Jul-14
Feb-15
Sep-15
Apr-16
Jan-18
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company
Exhibit 10: We expect Titan to report profit in all scenarios in FY21 and FY22
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 163,016 187,468 138,563 222,514 255,891 189,137
CAGR over FY20 -19% -7% -31% 11% 27% -6%
EBITDA 15,735 20,155 11,127 25,952 32,406 19,271
EBITDA margin 9.7% 10.8% 8.0% 11.7% 12.7% 10.2%
PAT 9,183 12,490 5,735 16,435 21,265 11,436
EPS (`) 10.3 14.1 6.5 18.5 24.0 12.9
Source: Ambit Capital research, Company
Risk to our thesis: Prolonged lockdown and social distancing measures may further
delay weddings and delay demand for non-discretionary purchase – a key risk to our
BUY stance on Titan.
Jubilant Foodworks
(Jubilant IN, BUY, TP: `1,950, 11% upside)
Jubilant will be the biggest beneficiary of consolidation of the food services
industry, improved share of online ordering and focus on more trusted
brands on hygiene concerns. Fortressing strategy will also get accelerated
given improved availability of better high street locations with lower
rentals/sales post Covid-led consolidation. Fortressing drives lower delivery
time and better customer experience, improving share. That said, near-term
earnings may continue to see pain of limited occasions of ordering and
Indians preferring to cook at home rather than ordering. Once the sentiment
revives, pace of revenue growth for Jubilant will outpace other discretionary
players. Remain BUYers on Jubilant with revised TP of `1,950 (`2,000 earlier),
implying 11% upside. We cut FY21/FY22 revenue and EPS by 26%/17% and
61%/25% respectively to incorporate impact of Covid-19 and now build in
8%/12%/21% revenue/EBITDA/EPS CAGR during FY20-22. Key risk:
Prolonged weakness in consumer sentiment; delay in pickup of eating out
habit on account of hygiene concerns
The good….
Lower rentals post Covid to accelerate fortressing strategy: Apart from the
near-term pain, we believe Covid-19 brings in positive narrative from a fortressing
strategy perspective (deepening store depth) driving 20 minutes delivery (vs 30
minutes now). We believe unorganized competition and other cloud kitchens (which
arose due to Zomato/Swiggy) will likely see more closures. This would lead to more
attractive rental deals (rent/sales) as well as improved store economics for Domino’s,
driving economic feasibility for deepening fortressing strategy. A fortressing strategy
will: a) reduce delivery times for customers, leading to higher share of wallet; and b)
better customer satisfaction as Pizza is delivered fresher, again leading to higher
share vs other cuisines. We expect store expansions to accelerate without being a
drag on margins as seen over FY15-17.
Will not only survive but will thrive: Jubilant will be the biggest beneficiary of the
current situation within the restaurant space given well-known brands like Domino's
would be preferred over smaller restaurants/cloud kitchens as hygiene will play an
important role over discounting.
Better control over hygiene given own supply chain and control over
delivery: With Jubilant's own supply chain (sourcing as well as delivery) in play, it
has a better control over hygiene standards. Third party delivery providers such as
Zomato and Swiggy don’t have a similar control over delivery staff as Dominos.
Similarly, hygiene trust over mom and pop restaurants listed on these delivery
apps may be lesser during and post Covid-19 driving share gains for JUBI.
Competition drying up: Jubilant will also benefit from the decrease in
competition from food aggregators as they have curtailed discounting (link) as
they focus on cutting their cash burn. Food aggregators are also likely to face
challenge in terms of liquidity as funding from investors may dry up on the back
of recent change in FEMA which requires approval from the Ministry of Home
Affairs for investment from countries like China and Pakistan. We also note that
(link) cloud kitchens have also started downsizing their business due to demand
as well as supply side challenges being faced by them. Additionally, earnings
pain during Covid period may lead to a lot of smaller restaurants disappearing.
Beneficiary of increased consumption through online ordering: It is
relatively well positioned given higher share of delivery (~65%) vis-a-vis dine-in
(~35%).
Continue to operate albeit at lower capacity: Unlike other retail and discretionary
businesses which were completely shut down (barring grocery), Jubilant is still
operating its Domino’s chain in India. This would reduce cash burns vs. other peers.
Exhibit 11: Domino’s India is running campaign on social media to promote about its
hygiene and sanitization process (Link)
…the bad
Dine-in would suffer: QSR chains were the first to get hit as malls were shut down
even before the general lockdown started. While delivery for QSR chains will see a
faster recovery vs other players, dine-in QSR (~35% of JUBI’s revenues) may continue
to suffer more due to their presence being largely in high crowded places like malls
and high streets.
Exhibit 12: Pizza consumption both dine-in and in-office delivery will suffer; street
expectation that Jubilant would do well like its US counterparts may not turn out to be
true
At home, In-store,
35% 35%
Source: Company, Ambit Capital. Pie denotes % contribution to JUBI revenues from various points of consumption
Comparing to US may not be right: Unlike US, where pizza is a reasonably cheap
product from a purchasing power point of view, pizza is relatively expensive product
in India ($2-3 in India vs. $6-7 in US). In fact in India, we do see higher trends of
people starting to make food on their own rather than ordering from outside. In fact
local players like Mozo Pizza have started to provide packed ingredients for people to
make Pizza at home.
Occasions of consumption may go down during Covid-19 period: Pizza is a
good mood product. When the sentiment is weak, we may see fewer occasions of
usage. Pizza parties are the most common things in offices to celebrate
occasions/favorite working lunch item, watching sporting events with friends/family;
all such event-based demand will likely go way for the time being. While home
delivery may rise, weaker dine-in and lower office and event-driven consumption will
impact SSGs intermittently.
Levers on employee cost may be limited: While Jubilant has noted that it is
moving all its store employees to flexi-pay, we believe this business is a very high
employee motivation business. Any mistakes or disgruntled employee can impact the
reputation of the brand. Chances that any employee catches the virus and delivers
too may create reputation damage despite all the precautions taken by management.
Short-term pain: Loss of sales, no absorption of high fixed costs, and delay in
store rollouts
Loss of sales due to ~20 days of disruption in March 2020 and another 90 days
of disruption due to lockdown in 1QFY21 (our base case view) will result in
negative SSG during FY21.
Impact of negative operating leverage due to lower absorption of high rental
and employee cost will likely impact margins.
Delay in new store rollouts as well as closure of unprofitable store to pick up
as companies will focus on conserving cash alongside malls closures that would
delay fit-out works. We note Jubilant’s topline growth in FY20 was 10% while
store addition too was ~120 (~10% of existing population)
Higher rental/employee costs: Jubilant may not be able to rationalize rentals
for large dine-in stores where demand may drop given the uncertainty on Covid-
linked recovery while it has to add people to do more deliveries.
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
Slowdown in store expansion: One of the key growth drivers for Jubilant has been
store expansion, which under the current scenario will face headwinds and impact
overall revenue growth. In the last 5 years, revenue CAGR of 13% was driven more
by store CAGR (of 9%) than SSG average growth (of 7%). We expect pace of store
expansion to moderate to 3%/4% in FY21/FY22 (vs. pre-Covid estimate of 10%/9%).
High operational leverage: Jubilant is currently trading at 47x on FY22 EPS (43x
on LTL pre Ind-AS EPS estimates). Jubilant’s degree of operating leverage (basis
FY19) at 3.5x implies high fixed costs and hence higher impact on PBT for every 1%
change in revenue.
Exhibit 15: Barring Burger King, all the other QSR players have increased payout to their employees; on the contrary,
Jubilant has reduced the payouts to employees
Company Commentary
Have committed to pay additional bonuses to our corporate store and supply chain hourly team members over a 10-week period
Domino's Pizza US
from mid-March through at least the last pay period in May.
Chipotle Mexican Labour costs were elevated as company accommodated crew needs, shifted hours to support the growing digital business, and made
Grill additional employee investments in the form of extra assistance pay (10% increase in hourly rates) and elevated quarterly bonuses.
At our 1,200 company-owned restaurants around the world, we are paying scheduled hours to team members who are required to
stay at home due to Covid-19. Recognizing the vital role our Restaurant General Managers continue to play in these 1,200 stores, we
YUM Brands
have provided $1,000 one-time bonuses to our RGMs in addition to committing to pay their second quarter bonuses, even if their
restaurant sales performance would not normally qualify.
Burger King All the restaurant employees have been put on temporary unemployment. Headquarter is closed and the majority of their employees
France have also been put on temporary unemployment.
Source: Ambit Capital research, Company, Bloomberg
Exhibit 16: Global chains are taking various initiatives to help franchisees mitigate liquidity risks
Company Commentary
We have deferred the collection of rents and royalties earned in March and April in most markets around the world. Other thing
McDonald's US that's happened is essentially we've converted our rent to variable rent based on sales. So the restaurants that have been closed
effectively aren't paying rent because they don't have sales.
Chipotle Mexican
Chipotle is in discussions with its landlords about rent deferrals and abatements.
Grill
To help our franchise partners, we are providing assistance to those who are in good standing and need more access to capital,
YUM Brands including grace periods for certain near-term payments and deferring certain asset obligations. These grace periods provide those
franchisees with cash flow constraints, an additional 60 days to pay two of their royalty payments.
Have retained future rents payment and initiated discussions with their main suppliers (including landlord) on new payment terms
Burger King France
and rebates.
Source: Ambit Capital research, Company, Bloomberg
Exhibit 17: All the companies have withdrawn their previous guidance due to uncertainty
Company Commentary
Have withdrawn their two- to three-year outlook for global retail sales growth, US same-store sales growth, international
Domino's Pizza US
same-store sales growth and global net unit growth.
Company has withdrawn their previous FY20 guidance related to comparable restaurant sales growth, new restaurant
Chipotle Mexican Grill
openings, and effective full-year tax rate.
Exhibit 20: Jubilant has undergone multiple re-rating Exhibit 21: …GM improvement and expectations on
which was led by… improvement in SSG
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company
Trent
(TRENT IN, BUY, TP: `725, 10% upside)
Trent’s Westside format scores best in terms of operating matrix (SSG,
revenue/sq ft, EBITDA margin) amongst all the apparel players but lags at
company-level profitability led by losses and cash-burn in grocery (through
its subsidiaries). Business may struggle in the near term due to Covid as
footfalls into physical stores may remain challenged even as lockdown opens
up gradually and new purchases are reduced given limited social
interactions. Trent has accelerated its store expansions meaningfully across
all three fashion formats (Westside, Zudio, Utsa), adding ~50% of their ~250
fashion stores in the last 2 years (FY19 and FY20) as it gained comfort on
store economics for each format. While pace of store rollouts in FY21 would
get hit, it would recover back to pre-Covid pace in FY22 given balance sheet
strength. Remain BUYers with revised TP of `725 (`640 earlier), implying 10%
upside. Trent is trading at 40x EV/EBITDA on TTM basis vs last 3-year
average of 51x EV/EBITDA. Key risks: Increase in losses incurred under
various grocery formats and decrease in the pace of store expansion under
Westside/Zudio.
The good…
Best-in-class store operating matrix: Westside has been one of the best apparel
retailers in the country, delivering some of the best operating metrics in terms of
SSSG, sales/sq ft, store expansion and margins. Trent also benefits from being a
focused player in the female and kids wear category; organized female/kids branded
apparel market is growing at ~32% CAGR vs 12-14% for the overall branded apparel
market.
Exhibit 22: Westside’s superior product assortment and supply chain drive better
SSSG, sales per sq ft and EBITDA margin
Revenue Revenue Store
Company/ EBITDA No of Area Sales per
(` mn) growth SSSG added in
Format margin stores (mn sq ft) sq ft (`)
FY19 (FY19) FY19
Westside 23,670 17% 11.0% 9.0% 150 27 2.70 10,225
Shoppers
44,280 6% 6.0% 3.9% 83 2 4.25 10,419
Stop*
FLF 56,240 27% 9.8% 8.7% 339 59 6.77 8,307
Raymond (Branded
16,470 16% 3.7% 335 67 dna dna
Apparel)
Pantaloons 31,940 12% 7.2% 1.4% 308 40 40.16 7,953
Madura# 50,320 13% 8.0% 5.3% 1,980 167 dna dna
Source: Company, Ambit Capital research; * data pertaining to store and cities are for Shoppers Stop outlets
only, # LTL growth, Stores and areas is only for Lifestyle brands, dna denotes data not available
Trent has perfected women wear and fast fashion formats: India’s US$40bn
fashion market has had many formats but few sustainable and scalable ones. They
vary from low-range, distribution heavy to wide-range, retail-heavy models. Lower
costs help distribution-heavy brands achieve high RoCE but wide-range and own
stores offer better NPV over long periods. Trent’s focus on private labels, store
experiences, higher focus on back end and fast fashion supply chain should drive
US$2bn in apparel revenues over next decade.
Market consolidation: Covid will accelerate consolidation in the market (weaker
organized players as well as unorganized) which would lead to better growth
opportunities for Trent increasing the opportunity to open new stores with better store
economics (due to lower rentals and employee cost inflation).
Fine tuning the back-end: Trent recently raised `9.5bn equity by way of
preferential issue to Tata Group to invest in back-end (technology, supply chain) and
acquire high street properties in tier2/3 markets. Trent views trendiness as its main
advantage over competitors and to that extent it is working to make its fast fashion
supply chain even faster.
Liquidity position remains strong with cash of ~`440mn, current investment of
~`6.8bn and no major debt repayment obligations over the next one year.
…the bad
Shift to online: Globally, online apparel players are emerging as the winners of the
current crisis as consumers are purchasing online rather than going out even as
stores start to reopen. This can be corroborated from the fact that Europe's biggest
online-only fashion retailer Zalando has said it expects full-year sales growth of 10-
20% while H&M, the world's second-biggest fashion retailer, said local currency sales
had tumbled 57% in 1 March to 6 May, while online sales grew almost a third during
the same period. We expect a similar trend in India as well with apparel retailer like
Trent witnessing revenue decline in FY21.
Store expansion to moderate over near term: One of the key growth drivers for
Trent has been store expansion under Westside as well as Zudio. However, with
slowdown in the economy and consumption weak, pace of store expansion will
moderate over the next 12-18 months and in turn moderate revenue growth for
Trent.
Inventories discounting: The biggest challenge fast fashion brands like Trent will
face is in terms of inventory becoming obsolete, driving the need to sell on higher
discounting which would lead to inventory write-off.
40%
800
30%
600
400 20%
200 10%
0 0%
FY16 FY17 FY18 FY19 FY20
Source: Ambit Capital research, Company
Trent has accelerated its store expansions meaningfully across all three fashion
formats (Westside, Zudio, Utsa) adding ~50% of their ~250 fashion stores in the last
2 years. While pace of store rollouts in FY21 would get hit, it would recover back to
pre-Covid pace in FY22. Remain BUYers with revised TP of `725 (`640 earlier),
implying 10% upside. The stock now trades at 40x EV/EBITDA (post Ind-AS where we
add both lease liability into EV and compare it to Ind-AS FY20 EBITDA) on TTM basis
vs. last 3-year average of 51x EV/EBITDA (pre Ind-AS) on TTM basis. We build in
30%/38%/42% revenue/EBITDA/PAT CAGR over FY20-22 led by 10/30 and 15/55
store additions in FY21/FY22 for Westside (170 store in FY20) and Zudio (81 store in
FY20).
Exhibit 25: We expect Trent to report loss under our base case in FY21 and turn
profitable in FY22
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 21,373 24,579 18,167 41,198 47,378 35,018
CAGR over FY20 -33% -23% -43% 30% 49% 10%
EBITDA 1,894 3,172 699 7,751 9,610 4,750
EBITDA margin 8.9% 12.9% 3.8% 18.8% 20.3% 13.6%
PAT (788) 168 (1,683) 2,602 3,993 357
EPS (2.2) 0.5 (5.1) 7.3 12.0 1.1
Source: Ambit Capital research, Company
Risk to our thesis: Increase in losses incurred under various grocery formats and
decrease in the pace of store expansion under Westside/Zudio are key risks to our
SELL thesis.
Exhibit 26: Trent has traded at rich multiple and has de- Exhibit 27: …led by increase in losses from subsidiaries
rated in the past 3 years… and JVs
90 TTM EV/EBITDA 3yr avg Share of loss from subsidiaries and JVs
80
0
70
60 (100)
50
(200)
40
` mn
30 (300)
20
(400)
10
0 (500)
Jun-15
Oct-15
Feb-16
Jun-16
Oct-16
Feb-17
Jun-17
Oct-17
Feb-18
Jun-18
Oct-18
Feb-19
Jun-19
Oct-19
Feb-20
Jun-20
(600)
FY16 FY17 FY18 FY19 FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Share of loss from subsidiaries
and JVs = Consolidated PAT – Standalone PAT
Avenue Supermarts
(DMART IN, SELL, TP: `2,000, 15% downside)
While we continue to like the business and the large opportunity for
retail/grocery players, DMart’s profitability is highly dependent on: (a)
throughput per sq ft which should be hit by lower footfalls (social
distancing)/inability to cram multiple people into the same amount of space
as in pre-Covid period; and (b) gross margin will be hit by lower mix of non-
essential/general merchandise and apparel. Turn SELLers on DMart with
revised TP of `2,000 (`2,300 earlier), implying 15% downside, given over the
next 12-18 months kirana store and e-commerce players will outpace growth
and gain market share as consumers avoid crowded places like shopping
malls/large-format stores and chase convenience of home
delivery/neighborhood store over discount/pricing. Current valuation of 122x
TTM P/E seems expensive for a stock with 18%/17%/16%
revenue/EBITDA/EPS CAGR in FY20-22E. Key risks: Increase in the pace of
store expansion and better GM led by faster-than-expected recovery in
general merchandise and apparels category.
The good…
Benefiting from stress in real estate: DMart’s business model of owning rather
than renting real estate is will aid in (a) keeping the operating cost lower given no
rental expense; and (b) acquiring real estate at cheap prices on the back of distress in
the price of real estate.
Cash-rich balance sheet: DMart recently raised ~`41bn by fresh issue of shares.
This would aid in store expansion and benefit from distress in the real estate sector.
Grocery least impacted: Demand for grocery has not been impacted and DMart
continued to operate more than 50% of its outlets even in lockdown period. Led by its
efficient supply chain, DMart did not face challenges of stock-outs like other grocery
players.
Exhibit 28: Benchmarking grocery distribution: DMart remains the best business
model in the grocery space
Ecommerce
B2C Marketplace High Low High Low Medium Medium
Hybrid
B2B2C High High High Low High Low
Source: Company, Ambit Capital research. Examples in brackets. Kirana via B2B is Jumbotail/Udaan etc. B2B2C
is hyperlocal kirana model where customer orders through an app and a local kirana fulfils it. Kirana also sources
from the app owner. B&M means brick & mortar. Green shows low impact
Exhibit 29: Buying deferment by customers and challenges for selling of non-essential items are key challenges in the Covid
period
…the bad
In the near term, local kirana to be back in flavor: As consumers avoid crowded
places and move back to local kirana stores for their daily needs, DMart will be worst
hit. We believe the trend of purchasing from local kirana stores will continue for the
next 12-18 months; hence LTL growth of DMart would be severely hit.
Exhibit 30: Online and Kirana stores are gaining traction
Online delivery players providing convenience: Amazon, Big Basket has started
to see new customer additions as customers look for convenience. This can increase
competitive intensity in the grocery space and can act as a catalyst in driving higher
growth in e-commerce space at the cost of modern trade. Moreover, competition
from other offline players too has increased who have launched their own online
grocery ventures.
Exhibit 32: While bill cuts witnessed 25% CAGR over FY15- Exhibit 33: …LTL growth slowed in FY20 primarily due to
20 partially aided by store expansion… the impact of lockdown in Mar’20
200 1,200
20%
1,100
150 15%
1,000
100 10%
900
50 800 5%
- 700 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Margin to take a hit: DMart’s EBITDA margin is based on 2 key factors: (a)
throughput per sq ft; and (b) share of general merchandise and apparel. DMart has
closed its general merchandise and apparel segments (high gross margin and higher
ticket size), impacting both GM and throughput per sq ft. Throughput per sq ft has
taken a hit also due to lower capacity utilization (lower footfalls).
Exhibit 34: GM declined 120bps YoY in 4Q due to inferior Exhibit 35: …leading to YoY decline in EBITDA margin as
product mix (lower share of general merchandise and well
apparels)…
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Exhibit 37: We expect DMart to report profit under our base case in FY21 and FY22
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 246,820 283,843 209,797 341,772 393,038 290,507
CAGR over FY20 0% 15% -15% 18% 26% 9%
Gross margin 13.4% 12.0% 8.0% 15.0% 15.0% 14.0%
EBITDA 15,289 14,808 412 29,175 34,978 20,468
EBITDA margin 6.2% 5.2% 0.2% 8.5% 8.9% 7.0%
PAT 8,701 8,341 (2,431) 18,238 22,580 11,722
EPS 13.4 12.9 (3.8) 28.2 34.9 18.1
Source: Ambit Capital research, Company
Risk to our thesis: Decrease in discounting led by lower competitive intensity, pick-
up in demand for general merchandise and apparels and ramp-up in the pace of
store expansion due to real estate distress are key risks to our SELL stance.
Exhibit 38: DMart’s TTM valuations should correct given Exhibit 39: …led by strong LTL growth and improving
weaker earnings growth (vs. past) over next two years; its sales per sq ft (barring FY20)
valuation remained rich…
Aug-18
Aug-19
Dec-17
Jun-17
Oct-17
Feb-18
Apr-18
Jun-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
-5%
FY15 FY16 FY17 FY18 FY19 FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company
The good…
Balance of wholesale and direct to customers: Unlike most of the other
retail/apparel players who are either only direct to customers (Trent) or only through
distributors (Page Industries), ABFRL revenue stream is diversified across direct to
customers and through distribution/wholesale model. While structurally there is a
shift from general trade (wholesale/distribution) to modern trade (large format
stores), under the current scenario consumers will avoid going to crowded places like
LFS and would rather stick to general trade for their purchases, which will aid ABFRL
gain market share from apparel players.
Exhibit 40: ABFRL revenue stream is well-diversified across Exhibit 41: Madura’s revenue stream is diversified as
multiple formats; Pantaloons may be disrupted more due well; Retail business will be hurt the most
to Covid
Lifestyle Brands Pantaloons Fast Fashion Other Businesse Wholesale Retail Others
2% 3% 4% 6%
5% 5% 4% 3% 17% 17% 19% 20%
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
…the bad
Risk of inventory write-off: One of the biggest concerns for apparel players is the
inventory write-down they will need to undertake. We note ABFRL’s shift to the 12
season model (vs 4 season model) allows it to reduce its lead times significantly.
However, we believe most of the apparel players (including ABFRL) would indulge in
heavy discounting to (a) liquidate inventories; (b) benefit from the pent up demand
post lockdown; and (c) generate cash flows to fund operating expenses.
Too many loss-making ventures: ABFRL incurred EBITDA-level loss of `1bn/`1.2bn
in FY18/FY19 and `0.8bn in 9MFY20 from its Fast Fashion (People and Forever 21)
and other businesses (Global brands and Innerwear). It’s recently acquired ethnic
wear businesses, Jaypore and Shantanu & Nikhil, are loss-making as well with
EBITDA loss of `20mn in 3QFY20 and `100mn in 9MFY20.
Structural risk to formal wear: ABFRL’s key brands like Van Heusen, Peter England
and Louis Phillipe are highly skewed towards formal wear. Not only is growth for In 4QFY20, ABFRL Sales declined
formal wear lagging overall apparel growth, given current situation of work from only 5% YoY (5% decline in core
home and likelihood of the trend continuing over the next 6-12 months for some part Madura, 1% decline in Pantaloons)
of the service industry, we see ABFRL impacted more than other apparel players. but caused EBITDA loss of
Rs570mn (pre-Ind-AS) and
Shift to online ecommerce: While ABFRL has a reasonably good online presence increased net debt (partly
(high single-digit share). However, we note that during the middle of 2015-18 increased due to unsold
Madura’s revenue growth de-accelerated due to online and other competition. While inventories) to Rs25bn vs Rs22bn in
growth has accelerated back from FY19/FY20, we may see a reversal as Covid would Q3.
lead to higher online shift.
Exhibit 43: Losses in Fast Fashion and other businesses are rising
(200)
(400)
` mn
(600)
(800)
(1,000)
FY16 FY17 FY18 FY19 FY20
Exhibit 44: ABFRL is unable to benefit from its large scale and better gross margin;
good cost controls if done sustainably can create lot of value for shareholders
Westside ABFRL Westside ABFRL
FY19
` mn ` mn % of sales % of sales
Number of stores
Revenue 25,317 81,177 100.0% 100.0%
Gross profit 12,993 41,928 51.3% 51.6%
Breakup of expense
Employee 2,525 9,130 10.0% 11.2%
Rent 3,180 11,104 12.6% 13.7%
Repairs and maintenance 808 1,829 3.2% 2.3%
Power/fuel/electricity 557 1,295 2.2% 1.6%
Advertisement and Sales Promotion 430 4,415 1.7% 5.4%
Travelling Expenses 156 882 0.6% 1.1%
Professional and Legal Charges 278 940 1.1% 1.2%
Bank Charges 133 373 0.5% 0.5%
Transportation and Handling Charges 743 844 2.9% 1.0%
Security and House Keeping Charges - 2,627 0.0% 3.2%
Information Technology Expenses - 625 0.0% 0.8%
Sourcing Fees 332 - 1.3% 0.0%
Other expenses 750 1,968 3.0% 2.4%
Misc/ general expenses 737 356 2.9% 0.4%
EBITDA 2,366 5,541 9.3% 6.8%
Source: Ambit Capital research, Company
Dilution on the cards: ABFRL’s board has approved rights issue of `10bn; at an
issue price of `130 it implies ~9% dilution. Management has stated that a substantial
part of the rights issue will be used to repay debt. ABFRL has repayments of ~`15bn
due over April to June 2020 (excluding ~`5.3bn of NCD repayment, which was
redeemed on April 20, 2020) and has only ~`2.6bn of cash and liquid investments.
Exhibit 45: ABFRL’s net debt is on the rise… Exhibit 46: …which is adversely impacting the liquidity
ratio
Net debt (LHS) Net Debt:Equity (RHS) Net debt:EBITDA (LHS) Interest coverage ratio
22 2.5 9 3.5
8 3.0
20 2.0 7
2.5
18 6
1.5
Rs bn
5 2.0
16
4 1.5
1.0
14 3
1.0
0.5 2
12 0.5
1
10 - 0 -
FY19 FY20 FY21E FY19 FY20 FY21E
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Exhibit 48: We expect ABFRL to report loss under our base case in FY21 and turn
profitable in FY22
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 56,724 65,232 48,215 79,769 91,735 67,804
Gross margin 50.5% 52.0% 50.0% 51.6% 52.0% 50.5%
CAGR over FY20 -35% -25% -45% -9% 5% -22%
EBITDA 1,909 5,729 (1,355) 7,308 11,937 2,057
EBITDA margin 3.4% 8.8% -2.8% 9.2% 13.0% 3.0%
PAT (1,721) 1,137 (4,164) 2,797 6,261 (1,133)
EPS (`) (2.0) 1.3 (4.9) 3.3 7.4 (1.3)
Source: Ambit Capital research, Company
Risk to our thesis: ABFRL has multiple levers in terms of cost rationalization to
reduce loss and improve margin. Its ability to successfully implement such cost
rationalization is a key risks to our SELL thesis.
Exhibit 49: ABFRL EV/EBITDA multiple has de-rated Exhibit 50: …due to concerns around leverage
significantly…
Nov-16
Mar-17
Jul-17
Nov-17
Mar-18
Jul-18
Nov-18
Mar-19
Jul-19
Nov-19
Mar-20
0 -
FY19 FY20 FY21E
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Page Industries
(PAG IN, SELL, TP: `15,500, 19% downside)
Page will benefit from decrease in competitive intensity in male innerwear
and increase in demand for athleisure (led by increase in the workforce
working from home). However, Page may see challenges of: (a) inferior
product mix due to lower sale of premium SKUs as people cut/postpone
holidays and business trips; and (b) impact of negative operating leverage
given heavy manufacturing cost base. More importantly Page has to still find
levers to grow faster than 10% given distribution expansion and incremental
growth from new categories have slowed. We update our FY21/FY22 EPS by -
63% led by declining revenue and impact of operating leverage, building in
8%/11%/14% revenue/EBITDA/PAT CAGR (FY20-FY22). Current valuations of
57x/46x FY20/FY22 P/E factor in future dominance similar or larger than in
the past. Remain SELLers with revised TP of `15,500 (earlier 15,150),
implying 19% downside.
The good…
Business relatively resilient amidst COVID threat: Page will benefit from ~35%
share of outerwear and better presence in MBO channel, both of which are likely to
witness better customer traction in COVID world.
Resilient business: We believe Page will not face immense competition or the risk of
down trading led by (a) demand for innerwear as a category is highly inelastic; (b)
very low wallet share in the overall discretionary spending; (c) loyalty is sticky driven
by comfort factor; and (d) decline in the aggression of competition from VH as
ABFRL’s balance sheet is highly leveraged, so it will need to focus on limiting cash
burn. That said we note that male innerwear business itself
Exhibit 51: Growth of ABFRL’s other businesses (largely VH innerwear) is starting to
come off
45%
600
400 30%
200 15%
- 0%
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
Well placed in outerwear: Not only does Page have limited risk of revenue loss
(apart from reasons of lockdown), it also has large headroom to grow its athleisure
business (~33% share of revenue) led by increase in demand as a substitute for
formal wear due to increase in the workforce working from home. The challenges
would be growing penetration of online channel which limits benefit of such
advantages.
Beneficiary of transitory reversal in structural shift: While structurally there is a
shift from general trade (mom & pop shops) to modern trade (large format stores),
given the current scenario, consumers will avoid going to crowded places like LFS and
would rather stick to general trade for their purchases. With ~77% of revenue for
Page coming from general trade, it is best-placed in the near term to benefit from the
temporary revival of mom & pop shops.
…the bad
Struggle for volume continues: Page’s struggle on volume growth continues.
4Q/FY20 volumes declined 18%/3% partly also to do with COVID. Growth is largely
led by realization and mix changes 12%/ 7% for 4Q/FY20 which may peak out at
some point in time. Gross margin drop of 480bps YoY was a bit worrisome for
4QFY20 despite lower incentives (down 20% YoY). While Page will benefit from
higher sales of outerwear (aided by increased WFH) and increased consumer
preference for MBO channel (where Page is strong), annual pricing growth of 3-5%
may be difficult to come by and volume challenges on innerwear side may continue
amidst economically weak environment.
Limited headroom for expanding reach: Page’s distribution reach is fairly high
with ~63,000 retail touch points spread across 2,600 cities and towns. Incremental
demand for men’s innerwear was led by (a) consumers uptrading from
mass/economy brand (driving volume growth); and (b) existing consumers of Page
moving up the pyramid and opting for more premium products (driving
mix/realisation growth). We believe both these growth drivers will be impacted in the
near term (2-3 years) on the back of weak consumer sentiment. We do not see any
major uptick in demand from uptrading from mass brands to Page; at the same time
we may also witness existing consumers of Page sticking to mass/economy category
within Page rather than premiumising. This will not only limit revenue growth from
Page but will also limit margin expansion.
Exhibit 52: While retail touch point expansion has been robust, volume per store has
been declining
60,000
4,000
50,000
40,000 3,000
30,000 2,000
20,000
1,000
10,000
- -
FY14 FY15 FY16 FY17 FY18 FY19 FY20
Product getting expensive: Price points have become an issue in expanding the
appeal to a wider customer base and deepening retail distribution as well for Page.
While female innerwear product portfolio has clearly improved and investments have
also stepped up on improving the display of the stores, success has been limited so
far. On top of that, due to the high price point of female innerwear offered by Page,
ability to stock and sell such product is limited to only tier1/2 and some large tier 3
retailers.
Exhibit 53: With volume growth slowing, realization growth has been a key supporter
of revenue growth; this may be under threat over next few quarters as customers
seek value
20%
Revenue growth
10%
0%
-10%
-20%
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
Source: Ambit Capital research, Company
Long term growth unlikely to be more than 10-12%: Page grew well in the past
led by a) distribution expansion b) success in new categories such as outerwear and
female innerwear which drove ~20%+ sales CAGR for nearly a decade before FY19.
We believe such levers are limited with male innerwear (45% of revenues) likely to
grow at 6-8% while female innerwear (20% of revenues) will grow at ~10% while
outerwear will grow ~12% driving overall growth of ~10% at company level. We
believe such growth makes the stock expensive at 48x FY22 EPS.
Exhibit 54: Page’s revenue growth now mimics that of Exhibit 55: …and gross margin is below industry average
industry…
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
9MFY20
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
9MFY20
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
EBITDA margins to remain under pressure: EBITDA margins for Page will remain
under pressure on account of (a) increase in employee cost led by recent hiring for
kids vertical with no corresponding increase in topline; Page hasn’t taken any salary
cuts for employees (b) higher overhead and capex being incurred for doubling
capacity; (c) inferior product mix due to lower sale of premium SKUs as people cut
/postpone holidays and business trips; and (d) impact of negative operating leverage
due to decline in revenue.
Exhibit 57: We expect Page Industries to report profit under all the scenarios
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 22,758 26,172 19,344 34,402 39,562 29,242
CAGR over FY20 -23% -11% -34% 8% 16% 0%
Gross margin 54.6% 58.0% 55.0% 55.4% 58.5% 56.0%
EBITDA 2,120 4,237 944 6,613 9,875 4,700
EBITDA margin 9.3% 16.2% 4.9% 19.2% 25.0% 16.1%
PAT 1,091 2,675 211 4,430 6,870 2,998
EPS (`) 97.8 239.8 18.9 397.1 615.9 268.8
Source: Ambit Capital research, Company
20 50 5%
0%
0
0 -5%
Jun-10
Feb-11
Oct-11
Jun-12
Feb-13
Oct-13
Jun-14
Feb-15
Oct-15
Jun-16
Feb-17
Oct-17
Jun-18
Feb-19
Oct-19
Jun-20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
PVR
(PVRL IN, SELL, TP: `900, 15% downside)
While the long-term narrative of (a) multiplex being underpenetrated in
India; (b) market share gain from single screens; and (c) multiplex being a
duopoly market eliminates any pricing-based competition remains intact, we
believe multiplex will be one of the worst hit sectors within our consumer
discretionary coverage. The impact would be led by (a) shift of consumers
from multiplex to OTT; (b) lower occupancy led by norms around social
distancing in multiplex; and (c) lower revenue from F&B as consumers may
avoid eating at multiplex on account of hygiene concerns. Proposed rights
issue would further increase valuation (~6%) and would hurt RoE as well.
Turn SELLers on PVR with revised TP of `900 (earlier `2,220), implying
downside of 15% as we expect PVR to report loss of ~`5.7bn in FY21 and
~`0.3bn in FY22 led by lower occupancy and high operating and financial
costs. Key risk: Higher-than-expected occupancy rate.
The good…
Multiplex are underpenetrated in India: In 2018, more than 2,000 movies were
released in India vs ~1,000 in South Korea, China, UK and US. Despite having the
maximum number of releases, screens per million population is still very low at 8
screens per million of population vs 30/40 for China/South Korea and 60/125 for
UK/US.
Single screen still have the lion’s share: India’s multiplex industry is still
dominated by single screens (~69% share of screens in 2018). Within the multiplex
space, PVR and Inox Leisure are predominantly the only two key players driving store
expansion, providing large headroom for both them to grow without any cut-throat
competition.
Exhibit 60: Despite having highest number of movies Exhibit 61: Share of multiplex at ~31% provides large
released, India’s screen per mn of population is the least headroom to grow
1,000 60
40
500
20 2,750 2,950
2,450
- -
India South China UK US
2016 2017 2018
Korea
Source: Ambit Capital research, Company, Industry Source: Ambit Capital research, Company, Industry
Anchor tenants: Multiplex players are an anchor tenant for all mall owners and
hence provide some leeway to multiplexes to renegotiate rents and reduce the impact
of Covid19. We expect PVR should be able to renegotiate rentals with the property
owners for full/partial waiver of rent and temporarily move to revenue sharing model
which would reduce the drag on profits as well as on cash flows.
…the bad
Release of movie on OTT: – Film producers have started releasing movie on OTT;
some of the movies being released on OTT includes Akshay Kumar starrer Laxmi
Bomb, Ayushmann Khurrana and Amitabh Bachchan starrer Gulabo Sitabo, Vidya
Balan starrer Shakuntala Devi. This would act as catalyst for consumers to shift from
big screens to OTT. This practice is being witnessed globally as well with Universal
Pictures’ World, Walt Disney’s Artemis Fowl, Warner Bros’ Scoob, Universal Pictures’
The King of Staten Island, etc. being released on the OTT platform as well.
Customer acquisition and retention costs to accelerate: During the period of
lockdown, while multiplexes were under shutdown, consumers moved to OTT
platforms to keep up with entertainment. This led to an increase in people watching
content online and now poses challenge to multiplex players like PVR to bring them
back to theatres. PVR may need to run offers and promotions to win back the
consumers on its platform which would result in margin contraction. High
operating/financial leverage means the last 5% of footfalls are most critical for entire
profitability.
1,500 40%
Net cash cost (Rs mn) Occupancy (%)
1,000 35%
500 30%
- 25%
(500) 20%
(1,000) 15%
(1,500) 10%
(2,000) 5%
(2,500) 0%
1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22 3QFY22 4QFY22
Exhibit 64: We expect PVR to report loss in FY21 across all the 3 scenarios
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 7,987 9,185 6,789 30,032 34,536 25,527
CAGR over FY20 -77% -74% -81% -8% -1% -15%
EBITDA (889) (538) (1,269) 9,758 11,871 7,598
EBITDA margin -11.1% -5.9% -18.7% 32.5% 34.4% 29.8%
PAT (5,727) (6,134) (6,681) (316) 1,265 (1,933)
EPS (104.7) (112.2) (122.2) (5.8) 23.1 (35.3)
Source: Ambit Capital research, Company
Risk to our thesis: Faster than expected pickup in occupancy rate and ability to take
price hike are the key risk to our SELL thesis.
Exhibit 65: PVR’s EV/EBITDA multiple has de-rated Exhibit 66: …led by lower occupancy rate and increasing
significantly… leverage
30 TTM EV/EBITDA 3yr avg Occupancy rate Net Debt/EBITDA (x) - RHS
25 39% 6
20 37% 5
35%
15 4
33%
10 3
31%
2
5 29%
27% 1
0
25% 0
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Bata
(BATA IN, SELL, TP: `900, 33% downside)
Over the next 12-18 months, value will supersede fashion as a determining
factor for consumer and Bata would be the most impacted player within
footwear category given its focus on fashion product over mass market
segment. Bata’s topline as well as profitability will be impacted more vis-à-
vis Relaxo given: (a) higher share of stores in malls and high street; (b) risk
of downtrading due to slowdown in discretionary spending; and (c) higher
operating cost due to retail distribution model. We are building in -2%/-
1%/3% CAGR in revenue/EBITDA/EPS during FY20-22. Valuation of 49x FY22E
EPS seems expensive for a business that factors in most margin expansion
gains and growing sales in line or lower than the industry; FY22 onwards
earnings growth will mimic sales growth (~12%). Remain SELLers with
unchanged TP of `900 (33% downside).
The good…
Bata has changed: It has widened its appeal from a traditional old-style, comfort
and value-based footwear brand to a stylish and trendy youthful brand. Not only it
has ramped up its product but also upgraded its retailing experience. Product range
has improved across key brands like North Star (casual), Power (Sports), and Bata
(Red Label collection, 9 to 5 collection). The company also upgraded its store
experience meaningfully, refreshing most stores over last 2-3 years. This has
improved revenue growth along with margins and improved longevity of the
business.
…the bad
Trying to be everything for everyone has its own challenges: Being an
“everything for everyone” footwear retailer is a tough ask not only on inventory
management but also on brand positioning front. Customer experience across stores
is inconsistent as Bata tries to please a much wider section of consumers than peers.
Fashion footwear comes with its own challenges: Fashion footwear introduces
inventory management complexities because not only is the number of SKUs higher
but the product churn is also faster as fashion trends keep changing and it is
important for a company to stay on top of the trends. Fashion footwear as ca
category also faces increase in competitive intensity from fast fashion brands like
Zara, H&M, Westside, etc.
Downtrading and lower need of expensive footwear: We note that Bata derives
50% of revenues from SKUs priced at `1000+, where consumers may now choose to
not pay so much. Reduced social outgoings as well as increased trends in WFH may
reduce overall volumes within the closed shoe category. Multiple alternatives may
mean that discounting may be the order of the day in an inventory heavy industry.
Threat from online players may also be high. Bata with ~240days of product
inventory (on COGS) and high fixed costs due to all stores being owned may create
margin challenges.
Exhibit 67: Bata’s last 10-year revenue CAGR has been Exhibit 68: …and so has been the last 10-year EBITDA
lagging… CAGR
FY09 revenue FY19 revenue Revenue CAGR FY09 EBITDA FY19 EBITDA EBITDA CAGR
Impact of negative operating leverage to be severe: Bata has high fixed cost
owing to its owned retail model (vs distribution model for Relaxo). Lack of volume
growth and pressure on pricing due to downtrading by customer will hurt margins as
well.
Exhibit 70: Bata has high operating cost vis-à-vis Relaxo largely on account of owned
retail model vs distribution model for Relaxo
Bata Relaxo Bata Relaxo
FY19
` mn ` mn % of sales % of sales
Revenue 29,284 22,921 100.0% 100.0%
Gross profit 16,441 12,198 56.1% 53.2%
Break-up of expense
Employee 3,311 2,587 11.3% 11.3%
Rent is largely fixed while
Rent 3,793 442 13.0% 1.9% contract processing and
Contract processing and handling - 2,184 0.0% 9.5% handling is variable
Transportation and Handling Charges 627 992 2.1% 4.3%
Advertisement and Sales Promotion 1,199 768 4.1% 3.3%
Power/fuel/electricity 577 709 2.0% 3.1%
Royalty/ technical collaboration fees 711 - 2.4% 0.0%
Repairs and maintenance 158 262 0.5% 1.1%
Travelling Expenses - 206 0.0% 0.9%
Professional and Legal Charges 213 368 0.7% 1.6%
Other expenses 352 311 1.2% 1.4%
Misc/ general expenses 729 127 2.5% 0.6%
EBITDA 4,773 3,243 16.3% 14.1%
Source: Ambit Capital research, Company
Exhibit 71: We expect Bata to report profit under our base case in FY21 and FY22
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 19,240 22,126 16,354 29,254 33,642 24,866
CAGR over FY20 -37% -28% -46% -2% 5% -10%
Gross margin 57.5% 58.0% 56.0% 57.8% 58.5% 57.0%
EBITDA 3,778 5,259 2,395 8,063 10,421 5,982
EBITDA margin 19.6% 23.8% 14.6% 27.6% 31.0% 24.1%
PAT 649 1,758 (386) 3,489 5,253 1,931
EPS (`) 5.0 13.7 (3.0) 27.1 40.9 15.0
Source: Ambit Capital research, Company
Exhibit 72: Bata’s P/E multiple has re-rated significantly… Exhibit 73: …led by improving gross margin
CY11
CY12
CY13
FY15
FY16
FY17
FY18
FY19
FY20 (LTL)
Jun-10
Oct-11
Jun-12
Oct-13
Jun-14
Oct-15
Jun-16
Oct-17
Jun-18
Oct-19
Jun-20
Feb-11
Feb-13
Feb-15
Feb-17
Feb-19
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Relaxo
(RLXF IN, SELL, TP: `600, 8% downside)
Relaxo is trading at an expensive FY20/FY22 P/E of 70x/50x and current run-
up in the stock price (up 50% in last 1 year) doesn’t factor in Covid-led
disruption in demand and resultant impact on profitability. Relaxo will also
face a) supply-side challenges in 1HFY21 given limited availability of labour
and application of social distancing in plants causing 30-40% decline in sales
b) impact on sales of closed footwear shoes (20% of sales). We turn SELLers
on Relaxo with revised TP of `600 (`700 earlier), implying 8% downside.
Relaxo’s value proposition of low ASPs (`135 in FY20) makes it relative less
impacted on account of down-trading in the footwear category. While benign
raw material price-led GM improvement is a lever to improve profitability, it
will not be able to recoup the impact of (a) revenue decline in FY21, (b)
unfavourable product mix on account of tepid consumer sentiment, and (c)
impact of negative operating leverage.
The good…
Least impacted footwear retailer: Relaxo’s presence is largely dominated in tier
2/3/4 cities with limited presence in metro and tier-1 cities. Relaxo’s business model
is built around MBOs (~90% of revenue) while only 10% of the total business comes
from modern trade, e-commerce and large format stores. With MBOs expected to
recover faster than LFS and modern trade, Relaxo will not only witness faster recovery
but also increase in demand on temporary shift from modern trade to general trade.
Low ASP, beneficiary of downtrading: While other footwear players are moving
up the value chain in the premium categories, Relaxo has been focused on the
bottom of the pyramid where competition from other branded players is least. Relaxo
will also benefit from people downtrading from higher price points to lower price
points as they cut discretionary spending.
Exhibit 74: Relaxo’s ASP has remained low at ~`135/pair
20 -5%
0 -10%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Exhibit 75: Relaxo’s 4QFY20 gross margin was highest in the last 34 quarters
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
Source: Ambit Capital research, Company
…the bad
Supply chain disruption: Footwear manufacturing is a labour-intensive process and
Relaxo in its recent press release (link) stated that due to restrictions in manufacturing
operations, fulfilment of demand will be a challenge.
Growth vs margin: Historically, Relaxo has refrained from taking price hikes to keep
the volume growth momentum. However, recently Relaxo took price hikes which
would support overall margins though volume growth may turn benign.
Exhibit 76: During FY17-19, Relaxo refrained from taking price hike which aided in
volume growth but at the cost of gross margins
60% 25%
55% 20%
15%
50%
10%
45%
5%
40% 0%
35% -5%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Exhibit 78: We expect Relaxo to report profit under our base case in FY21 and FY22
FY21 FY22
` mn
BASE BULL BEAR BASE BULL BEAR
Revenue 17,264 19,854 14,674 26,971 31,017 22,925
CAGR over FY20 -28% -18% -39% 6% 13% -2%
Gross margin 60.0% 58.0% 56.0% 59.0% 58.5% 57.0%
EBITDA 2,120 2,678 577 5,253 6,624 3,268
EBITDA margin 12.3% 13.5% 3.9% 19.5% 21.4% 14.3%
PAT 710 1,128 (444) 3,105 4,131 1,620
EPS 2.9 4.5 (1.8) 12.5 16.6 6.5
Source: Ambit Capital research, Company
Exhibit 79: Relaxo’s P/E multiple has re-rated Exhibit 80: …led by volume growth and improving gross
significantly… margin
40 50% 10%
5%
20 45%
0%
0
40% -5%
Jun-10
Feb-11
Oct-11
Jun-12
Feb-13
Oct-13
Jun-14
Feb-15
Oct-15
Jun-16
Feb-17
Oct-17
Jun-18
Feb-19
Oct-19
Jun-20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Ambit Capital research, Company, Bloomberg Source: Ambit Capital research, Company, Bloomberg
Balance sheet
Year to March (` mn) FY18 FY19 FY20 FY21E FY22E FY23E
Shareholders' equity 660 1,320 1,320 1,320 1,320 1,320
Reserves & surpluses 9,018 11,302 10,510 11,390 14,396 16,938
Total networth 9,678 12,622 11,829 12,709 15,716 18,258
Debt - - 16,510 17,596 19,013 20,855
Deferred tax liability 549 500 (355) (355) (355) (355)
Total liabilities 10,227 13,122 27,985 29,950 34,374 38,759
Net block 7,892 8,095 21,487 19,631 19,077 19,731
CWIP 142 157 394 394 394 394
Investments 2,631 1,808 512 512 512 512
Cash & equivalents 1,290 4,943 6,392 10,415 16,001 20,043
Debtors 157 274 193 171 248 286
Inventory 642 771 922 686 990 1,145
Loans & advances 2,136 2,239 3,365 2,228 3,218 3,722
Other current assets 77 271 369 369 369 369
Total current assets 4,302 8,498 11,241 13,869 20,826 25,567
Current liabilities 4,576 5,191 5,372 4,285 6,188 7,159
Provisions 164 245 278 171 248 286
Total current liabilities 4,740 5,435 5,650 4,456 6,436 7,445
Net current assets (438) 3,062 5,592 9,413 14,391 18,122
Total assets 10,227 13,122 27,985 29,950 34,374 38,759
Source: Ambit Capital research, Company
Quarterly estimates: We expect Jubilant to report loss of ~``1bn in 1QFY21 in our base-case scenario
BASE CASE (post IND AS) FY21 FY22
` mn, unless specified 1QFY21E 2QFY21E 3QFY21E 4QFY21E 1QFY22E 2QFY22E 3QFY22E 4QFY22E
Total Net Sales 3,748 7,692 9,807 10,032 11,097 11,311 12,004 10,762
% Growth in total net sales -60.1% -22.2% -7.4% 11.7% 196.1% 47.1% 22.4% 7.3%
COGS 956 1,961 2,501 2,558 2,830 2,884 3,061 2,744
Gross Profit 2,792 5,730 7,306 7,474 8,267 8,427 8,943 8,017
Gross Margin % 74.5% 74.5% 74.5% 74.5% 74.5% 74.5% 74.5% 74.5%
Employee cost 1,499 1,538 1,961 2,006 2,164 2,206 2,341 2,099
Employee cost as % of sales 40.0% 20.0% 20.0% 20.0% 19.5% 19.5% 19.5% 19.5%
Rent 159 183 211 213 215 218 221 225
Rent as % of sales 4.2% 2.4% 2.2% 2.1% 1.9% 1.9% 1.8% 2.1%
Other expenses 1,627 2,383 2,804 2,849 3,190 3,235 3,380 3,120
As % of sales 43.4% 31.0% 28.6% 28.4% 28.8% 28.6% 28.2% 29.0%
- Variable Cost 618 1,192 1,520 1,555 1,720 1,753 1,861 1,668
As % of sales 16.5% 15.5% 15.5% 15.5% 15.5% 15.5% 15.5% 15.5%
- Fixed cost 402 410 410 410 430 430 430 430
As % of sales 10.7% 5.3% 4.2% 4.1% 3.9% 3.8% 3.6% 4.0%
- Semi fixed cost 607 781 874 884 1,040 1,052 1,089 1,022
As % of sales 16.2% 10.2% 8.9% 8.8% 9.4% 9.3% 9.1% 9.5%
EBITDA (492) 1,626 2,330 2,406 2,698 2,768 3,001 2,574
% Margins -13.1% 21.1% 23.8% 24.0% 24.3% 24.5% 25.0% 23.9%
Other income 180 184 193 202 213 223 234 246
Depreciation 687 790 912 919 929 942 956 972
EBIT (1,000) 1,020 1,610 1,690 1,982 2,049 2,280 1,847
EBIT margin -26.7% 13.3% 16.4% 16.8% 17.9% 18.1% 19.0% 17.2%
Interest 307 353 408 411 457 463 470 478
Profit Before Tax (1,307) 666 1,203 1,279 1,525 1,585 1,810 1,369
Taxes (329) 168 303 322 384 399 456 345
Effective tax rate 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2%
Profit After Tax (978) 499 900 957 1,141 1,186 1,354 1,025
Net Profit margin -26.1% 6.5% 9.2% 9.5% 10.3% 10.5% 11.3% 9.5%
EPS (`) (7.4) 3.8 6.8 7.3 8.6 9.0 10.3 7.8
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March (` Mn) FY18 FY19 FY20E FY21E FY22E FY23E
Share capital 888 888 888 888 888 888
Reserves and surplus 51,052 60,929 67,361 76,996 88,563 98,464
Sources of funds 68,196 84,779 100,943 113,139 131,803 150,750
Net block 9,739 10,694 20,535 22,308 24,282 24,590
Sundry debtors 1,930 3,582 2,144 3,567 3,666 4,864
Inventories 57,492 67,192 77,406 62,994 74,073 98,452
Current liabilities and provisions 25,770 29,920 30,937 28,178 34,879 42,490
Application of funds 68,196 84,779 100,943 113,139 131,803 150,750
Source: Ambit Capital research, Company
Quarterly estimates: While 1HFY21 will be a wash-out period, 2HFY21 will see recovery and margin expansion
FY21 FY22
(`` mn)
1QFY21E 2QFY21E 3QFY21E 4QFY21E 1QFY22E 2QFY22E 3QFY22E 4QFY22E
Jewellery
Tanishq stores 327 328 331 335 340 345 351 357
Stores added during the quarter - 1 3 4 5 5 6 6
Revenue per store 48.2 89.4 159.3 137.0 132.9 130.6 163.1 140.4
Revenue 15,078 28,434 51,923 45,334 44,329 43,930 55,620 48,562
Revenue Growth -62.7% -19.4% -4.0% 20.8% 194.0% 54.5% 7.1% 7.1%
Volume growth -73.3% -35.0% -20.0% 5.0% 180.0% 50.0% 4.0% 4.0%
Cum vol 28 56 76 84 79 84 79 87
Gold price (`/gm) (LHS) 4,700 4,774 4,770 4,905 4,935 4,917 4,913 5,052
Gold price growth (RHS) 39.7% 24.0% 20.0% 15.0% 5.0% 3.0% 3.0% 3.0%
Jewellery revenue 15,078 28,434 51,923 45,334 44,329 43,930 55,620 48,562
YoY Growth -63% -19% -4% 21% 194% 55% 7% 7%
Watches revenue 1,786 3,953 5,315 6,125 5,359 4,744 6,378 7,350
YoY Growth -75.0% -45.0% -15.0% 10.0% 200.0% 20.0% 20.0% 20.0%
Eyewear revenue 372 848 1,133 1,077 1,041 1,272 1,473 1,454
YoY Growth -75.0% -45.0% -15.0% 0.0% 180.0% 50.0% 30.0% 35.0%
Others revenue 181 308 444 456 200 339 489 502
YoY Growth -50.0% -30.0% -10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Total Net Sales 17,418 33,543 58,816 52,992 50,930 50,285 63,960 57,868
YoY Growth -64.7% -24.4% -5.2% 19.7% 192.4% 49.9% 8.7% 9.2%
COGS 13,063 25,157 44,112 38,684 37,179 36,205 47,650 42,822
Gross Profit 4,354 8,386 14,704 14,308 13,751 14,080 16,310 15,046
Gross Margin % 25.0% 25.0% 25.0% 27.0% 27.0% 28.0% 25.5% 26.0%
Employee cost 1,841 2,391 2,702 2,538 2,393 2,630 2,972 2,791
as % of sales 10.6% 7.1% 4.6% 4.8% 4.7% 5.2% 4.6% 4.8%
Advertising 523 939 1,176 1,325 1,273 1,257 1,599 1,447
as % of sales 3.0% 2.8% 2.0% 2.5% 2.5% 2.5% 2.5% 2.5%
Other expenses 1,988 2,743 4,029 3,717 3,651 3,616 4,348 4,022
As % of sales 11.4% 8.2% 6.8% 7.0% 7.2% 7.2% 6.8% 7.0%
Rent 17 34 59 53 51 50 64 58
As % of sales 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Variable Cost 784 1,241 2,059 1,855 1,783 1,760 2,239 2,025
As % of sales 4.5% 3.7% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Fixed cost 106 106 106 106 111 111 111 111
As % of sales 0.6% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Semi fixed cost 1,081 1,363 1,805 1,703 1,706 1,695 1,934 1,828
As % of sales 6.2% 4.1% 3.1% 3.2% 3.3% 3.4% 3.0% 3.2%
EBITDA 4 2,312 6,797 6,728 6,434 6,576 7,391 6,785
% Margins 0.0% 6.9% 11.6% 12.7% 12.6% 13.1% 11.6% 11.7%
Less: Depreciation 721 736 809 834 867 884 902 920
As % of sales 4.1% 2.2% 1.4% 1.6% 1.7% 1.8% 1.4% 1.6%
EBIT (718) 1,576 5,988 5,895 5,567 5,692 6,489 5,865
EBIT margin -4.1% 4.7% 10.2% 11.1% 10.9% 11.3% 10.1% 10.1%
Other income 401 401 401 441 463 486 511 536
as % of sales 2.3% 1.2% 0.7% 0.8% 0.9% 1.0% 0.8% 0.9%
Less: Interest 341 359 394 414 435 444 452 461
as % of sales 2.0% 1.1% 0.7% 0.8% 0.9% 0.9% 0.7% 0.8%
Profit Before Tax (658) 1,619 5,994 5,922 5,595 5,735 6,547 5,940
Taxes (166) 407 1,509 1,490 1,408 1,443 1,648 1,495
Effective tax rate 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2%
Profit After Tax (493) 1,211 4,486 4,431 4,187 4,291 4,899 4,445
Net Profit margin -2.8% 3.6% 7.6% 8.4% 8.2% 8.5% 7.7% 7.7%
EPS (`) -0.6 1.4 5.1 5.0 4.7 4.8 5.5 5.0
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March (` mn, unless
FY18 FY19 FY20 FY21E FY22E FY23E
specified)
Shareholders' equity 6,241 6,241 6,478 6,478 6,478 6,478
Reserves & surplus 40,186 49,704 104,878 113,579 131,817 154,400
Total net worth 46,427 55,945 111,355 120,056 138,294 160,878
Loan funds 4,393 6,952 37 2,000 2,000 2,000
Deferred tax liability 463 641 482 482 482 482
Total liabilities 51,291 63,545 114,303 124,967 143,205 165,789
Gross block 36,042 47,676 59,706 69,545 86,725 106,276
Net block 32,398 42,161 50,719 56,562 69,070 82,853
CWIP 1,471 3,766 3,619 3,619 3,619 3,619
Investments 1,976 2,300 3,038 3,038 3,038 3,038
Inventories 11,470 15,762 19,094 16,395 21,490 25,607
Debtors 334 755 485 586 796 985
Cash and cash equivalents 5,565 2,136 922 8,255 7,098 6,757
Loans & Advances 1,417 1,784 2,421 2,421 3,353 4,149
Other current assets 162 30 - - - -
Total current assets 19,464 20,467 22,923 27,656 32,737 37,499
Creditors 3,159 4,583 4,460 5,270 7,163 8,864
Other current liabilities 1,276 1,454 1,935 1,046 1,335 1,600
Provisions 399 394 143 143 143 143
Total current liabilities & provisions 4,834 6,431 6,538 6,459 8,642 10,607
Net current assets 14,631 14,036 16,385 21,197 24,095 26,892
Total assets 51,291 63,545 114,303 124,967 143,205 165,789
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March (` Mn) FY18 FY19 FY20 FY21E FY22E FY23E
Share capital 332 332 355 355 355 355
Reserves and surplus 15,839 16,636 24,634 23,847 26,449 31,359
Total Networth 16,172 16,968 24,990 24,202 26,805 31,714
Loans 3,914 3,942 2,997 2,997 2,997 2,997
Lease liability - - 21,471 22,320 24,977 27,101
Deferred tax liability (net) (28) (72) (1,070) (1,070) (1,070) (1,070)
Sources of funds 20,058 20,838 48,389 48,450 53,709 60,743
Net block 5,779 6,271 6,854 6,378 6,377 6,947
Lease assets - - 19,041 19,793 22,150 24,034
Capital work-in-progress 96 850 231 231 231 231
Investments 10,285 8,809 9,556 9,556 9,556 9,556
Cash and bank balances 303 510 441 2,456 3,999 7,758
Sundry debtors 131 141 133 59 113 139
Inventories 3,391 4,894 5,865 4,455 6,791 8,234
Loans and advances 1,547 1,809 1,957 1,034 1,993 2,455
Other current assets 1,583 2,249 8,803 8,147 9,397 9,999
Total Current Assets 6,955 9,603 17,199 16,151 22,293 28,586
Current Liabilities 2,875 4,510 4,275 3,339 6,279 7,849
Provisions 183 186 218 321 619 762
Current liabilities and provisions 3,058 4,696 4,493 3,660 6,898 8,611
Net current assets 3,897 4,907 12,707 12,490 15,395 19,976
Application of funds 20,058 20,838 48,389 48,450 53,709 60,743
Source: Ambit Capital research, Company
Trent’s forensic score percentile Exhibit 82: Trent’s greatness score percentile
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March (` mn) FY18 FY19 FY20 FY21E FY22E FY23E
Share capital 7,717 7,735 7,740 8,509 8,509 8,509
Reserves and surplus 3,239 6,534 3,119 10,629 13,425 17,138
Total Networth 10,930 14,289 10,859 19,137 21,934 25,647
Loans 18,614 17,029 23,628 19,628 17,628 11,628
Sources of funds 29,544 31,317 34,487 38,765 39,562 37,275
Net block 25,823 25,555 25,539 23,490 21,441 20,010
Capital work-in-progress 460 224 436 436 436 436
Investments 42.00 42.10 - - - -
Cash and bank balances 726 574 2,651 4,406 4,517 6,956
Sundry debtors 5,518 7,866 8,402 9,324 10,927 9,584
Inventories 16,912 19,213 23,494 18,019 17,062 20,067
Other current assets 491 5,183 5,814 4,538 5,584 5,685
Total Current Assets 27,804 36,368 43,458 37,435 39,238 43,440
Current liabilities and provisions 24,687 32,004 34,937 26,010 25,265 29,737
Net current assets 7,179 11,578 16,703 19,806 23,697 22,942
Application of funds 29,544 31,317 34,487 38,765 39,562 37,275
Source: Ambit Capital research, Company
Quarterly estimates: We expect ABFRL to report loss of `3bn in 1QFY21 in our base-case scenario
BASE CASE (LTL) FY21 FY22
` mn, unless specified 1QFY21E 2QFY21E 3QFY21E 4QFY21E 1QFY22E 2QFY22E 3QFY22E 4QFY22E
Revenue 5,146 13,913 20,428 17,237 14,587 20,408 24,840 19,935
Revenue growth YoY -75.1% -39.4% -20.3% -5.2% 183.4% 46.7% 21.6% 15.7%
COGS 2,522 7,235 10,214 8,101 6,856 10,204 12,172 9,369
Gross Profit 2,625 6,678 10,214 9,135 7,731 10,204 12,668 10,565
Gross Margin % 51.0% 48.0% 50.0% 53.0% 53.0% 50.0% 51.0% 53.0%
Employee cost 1,800 1,900 2,100 2,100 2,250 2,300 2,500 2,500
as % of sales 35.0% 13.7% 10.3% 12.2% 15.4% 11.3% 10.1% 12.5%
Rent 1,544 2,226 2,656 2,413 2,042 2,857 3,229 2,891
as % of sales 30.0% 16.0% 13.0% 14.0% 14.0% 14.0% 13.0% 14.5%
Other expenses 2,045 2,483 2,886 2,617 2,812 3,361 3,779 3,316
As % of sales 39.7% 17.8% 14.1% 15.2% 19.3% 16.5% 15.2% 16.6%
Variable Cost 257 696 1,021 862 729 1,020 1,242 997
As % of sales 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Fixed cost 548 548 548 548 630 630 630 630
As % of sales 10.7% 3.9% 2.7% 3.2% 4.3% 3.1% 2.5% 3.2%
Semi fixed cost 1,239 1,239 1,316 1,207 1,452 1,710 1,907 1,689
As % of sales 24.1% 8.9% 6.4% 7.0% 10.0% 8.4% 7.7% 8.5%
EBITDA (2,764) 69 2,573 2,005 627 1,686 3,160 1,859
% Margins -53.7% 0.5% 12.6% 11.6% 4.3% 8.3% 12.7% 9.3%
Less: Depreciation 622 653 622 653 622 653 622 653
As % of sales 12.1% 4.7% 3.0% 3.8% 4.3% 3.2% 2.5% 3.3%
EBIT (3,386) (584) 1,951 1,352 5 1,033 2,539 1,206
EBIT margin -65.8% -4.2% 9.5% 7.8% 0.0% 5.1% 10.2% 6.0%
Other income 112 152 121 121 128 134 141 148
as % of sales 2.2% 1.1% 0.6% 0.7% 0.9% 0.7% 0.6% 0.7%
Less: Interest 675 550 495 446 424 402 382 363
as % of sales 13.1% 4.0% 2.4% 2.6% 2.9% 2.0% 1.5% 1.8%
Profit Before Tax (3,949) (982) 1,577 1,028 (291) 765 2,297 990
Taxes (994) (247) 397 259 (73) 192 578 249
Effective tax rate 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2%
Profit After Tax (2,955) (735) 1,180 769 (217) 572 1,719 741
Net Profit margin -57.4% -5.3% 5.8% 4.5% -1.5% 2.8% 6.9% 3.7%
EPS (`) -3.8 -0.8 1.4 0.9 -0.2 0.7 2.0 0.8
No of Shares 774 874 874 874 874 874 874 874
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March FY18 FY19 FY20 FY21E FY22E FY23E
Shareholders' equity 112 112 112 112 112 112
Reserves & surplus 8,361 7,638 8,087 9,178 11,393 12,769
Total net worth 8,473 7,750 8,199 9,290 11,505 12,880
Loan funds 685 848 268 - - -
Lease liability - - 1,383 1,383 1,383 1,383
Deferred tax liability 110 125 2 2 2 2
Total liabilities 9,268 8,723 9,853 10,675 12,890 14,265
Net block 2,379 3,006 3,010 3,169 3,344 3,452
Lease assets - - 1,045 1,045 1,045 1,045
Inventories 5,679 7,501 7,186 6,799 8,406 9,016
Debtors 1,480 1,238 738 1,084 1,639 1,919
Cash and cash equivalents 669 440 1,169 983 2,905 4,254
Loans & Advances 866 1,132 329 561 848 993
Creditors 1,363 1,220 938 1,133 1,681 1,898
Total current liabilities 4,855 4,783 5,277 4,618 6,950 8,067
Net current assets 4,123 5,644 5,510 6,174 8,214 9,481
Total assets 9,268 8,723 9,853 10,675 12,890 14,265
Source: Ambit Capital research, Company
Page Industries forensic score percentile Page Industries greatness score percentile
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to Mar (` mn) FY18 FY19 FY20 FY21E FY22E FY23E
Fixed Assets 16,915 30,216 60,407 57,120 58,240 62,167
Current Assets 5,880 8,315 8,576 6,597 7,917 9,543
Current liabilities 4,416 12,135 10,750 4,634 6,034 7,148
Total Assets 19,067 26,000 63,528 65,925 67,518 74,778
Total networth 10,754 12,395 14,802 12,108 11,792 12,808
Total debt 8,305 11,039 48,723 53,814 55,723 61,967
Total Liabilities 19,067 26,000 63,528 65,925 67,518 74,778
Source: Ambit Capital research, Company
Quarterly estimates: We expect PVR to report loss in all the 4 quarters of FY21 in our base-case scenario
BASE CASE (IND AS 116) FY21 FY22
` mn, unless specified 1QFY21E 2QFY21E 3QFY21E 4QFY21E 1QFY22E 2QFY22E 3QFY22E 4QFY22E
Revenue - 1,271 2,512 4,204 6,089 6,993 8,066 8,884
Revenue growth YoY -100.0% -86.9% -72.6% -44.7% #DIV/0! 450.2% 221.1% 111.3%
- Content Cost - 314 566 1,011 1,431 1,613 1,881 2,081
Content as % of Tickets 41.9% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5%
- COGS - 66 140 285 454 569 664 735
COGS as % of F&B 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Employee cost 600 500 600 700 750 800 850 950
as % of sales NA 39.3% 23.9% 16.6% 12.3% 11.4% 10.5% 10.7%
Other expenses 770 836 1,115 1,372 1,701 1,747 1,947 2,100
As % of sales NA 65.8% 44.4% 32.6% 27.9% 25.0% 24.1% 23.6%
Variable Cost 349 381 628 841 1,096 1,119 1,291 1,421
As % of sales NA 30.0% 25.0% 20.0% 18.0% 16.0% 16.0% 16.0%
Fixed cost 240 240 240 240 264 264 264 264
As % of sales NA 18.9% 9.6% 5.7% 4.3% 3.8% 3.3% 3.0%
Semi fixed cost 181 214 247 291 341 365 393 414
As % of sales NA 16.9% 9.8% 6.9% 5.6% 5.2% 4.9% 4.7%
EBITDA (1,370) (445) 91 836 1,753 2,262 2,725 3,019
% Margins NA -35.0% 3.6% 19.9% 28.8% 32.4% 33.8% 34.0%
Less: Depreciation 691 961 1,041 1,162 1,166 1,170 1,370 1,375
As % of sales NA 75.6% 41.5% 27.6% 19.1% 16.7% 17.0% 15.5%
EBIT (2,061) (1,407) (950) (326) 587 1,093 1,355 1,643
EBIT margin NA -110.7% -37.8% -7.8% 9.6% 15.6% 16.8% 18.5%
Other income 52 42 42 46 48 51 53 56
as % of sales NA 3.3% 1.7% 1.1% 0.8% 0.7% 0.7% 0.6%
Less: Interest 701 994 1,080 1,210 1,214 1,218 1,435 1,440
as % of sales NA 78.2% 43.0% 28.8% 19.9% 17.4% 17.8% 16.2%
Profit Before Tax (2,711) (2,359) (1,989) (1,490) (579) (75) (27) 259
Taxes (894) (778) (656) (492) (146) (19) (7) 65
Effective tax rate 33.0% 33.0% 33.0% 33.0% 25.2% 25.2% 25.2% 25.2%
Profit After Tax (1,816) (1,580) (1,332) (999) (433) (56) (20) 194
Net Profit margin NA -124.3% -53.0% -23.7% -7.1% -0.8% -0.3% 2.2%
EPS -33.2 -28.9 -24.4 -18.3 -7.9 -1.0 -0.4 3.5
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March (` Mn) FY18 FY19 FY20 FY21E FY22E FY23E
Share capital 643 643 643 643 643 643
Reserves and surplus 14,104 16,776 18,323 18,972 20,717 22,544
Total Networth 14,747 17,418 18,966 19,615 21,359 23,187
Lease liability - - 12,491 13,204 14,814 17,233
Sources of funds 14,747 17,418 31,457 32,819 36,174 40,419
Net block 2,949 3,127 13,605 11,884 10,635 11,588
Capital work-in-progress 121 173 199 199 199 199
Investments 5 - 50 50 50 50
Cash and bank balances 5,912 8,425 9,624 13,224 20,317 21,844
Sundry debtors 894 664 612 791 801 876
Inventories 7,652 8,393 8,737 7,529 6,745 7,835
Loans and advances 2,417 2,459 2,392 2,116 2,559 2,798
Total Current Assets 17,268 20,305 22,316 23,948 30,859 33,831
Current Liabilities 6,363 6,786 5,785 4,109 5,631 6,198
Provisions 304 536 108 333 1,118 230
Current liabilities and provisions 6,667 7,322 5,892 4,442 6,749 6,428
Net current assets 10,601 12,982 16,424 19,506 24,110 27,403
Application of funds 14,747 17,418 31,457 32,819 36,174 40,419
Source: Ambit Capital research, Company
Quarterly estimates: We expect Bata to report loss of ~``900mn in 1QFY21 in our base-case scenario
BASE CASE FY21 FY22
` mn, unless specified 1QFY21E 2QFY21E 3QFY21E 4QFY21E 1QFY22E 2QFY22E 3QFY22E 4QFY22E
Total Net Sales 1,764 4,332 6,637 6,507 7,410 6,064 8,296 7,483
YoY growth -80% -40% -20% 5% 320% 40% 25% 15%
COGS 794 1,863 2,788 2,733 3,260 2,608 3,402 3,068
Gross Profit 970 2,469 3,850 3,774 4,150 3,457 4,895 4,415
Gross Margin % 55.0% 57.0% 58.0% 58.0% 56.0% 57.0% 59.0% 59.0%
Employee cost 700 700 750 750 800 800 850 850
as % of sales 39.7% 16.2% 11.3% 11.5% 10.8% 13.2% 10.2% 11.4%
Rent 100 120 120 125 125 125 130 130
as % of sales 5.7% 2.8% 1.8% 1.9% 1.7% 2.1% 1.6% 1.7%
Other expenses 650 929 1,178 1,163 1,289 1,131 1,325 1,298
As % of sales 36.8% 21.4% 17.8% 17.9% 17.4% 18.6% 16.0% 17.3%
Variable Cost 176 347 498 488 556 455 581 561
As % of sales 10.0% 8.0% 7.5% 7.5% 7.5% 7.5% 7.0% 7.5%
Fixed cost 134 134 134 134 141 141 141 141
As % of sales 7.6% 3.1% 2.0% 2.1% 1.9% 2.3% 1.7% 1.9%
Semi fixed cost 339 448 546 541 592 535 603 595
As % of sales 19.2% 10.3% 8.2% 8.3% 8.0% 8.8% 7.5% 8.0%
EBITDA (479) 720 1,801 1,736 1,936 1,401 2,590 2,137
% Margins -27.2% 16.6% 27.1% 26.7% 26.1% 23.1% 31.2% 28.6%
Less: Depreciation 571 583 612 643 675 709 744 781
As % of sales 32.4% 13.5% 9.2% 9.9% 9.1% 11.7% 9.0% 10.4%
EBIT (1,051) 137 1,189 1,093 1,261 692 1,846 1,356
EBIT margin -59.6% 3.2% 17.9% 16.8% 17.0% 11.4% 22.2% 18.1%
Other income 145 124 171 145 160 176 194 213
as % of sales 8.2% 2.9% 2.6% 2.2% 2.2% 2.9% 2.3% 2.8%
Interest cost 266 260 273 287 293 299 314 329
as % of sales 15.1% 6.0% 4.1% 4.4% 4.0% 4.9% 3.8% 4.4%
Profit Before Tax (1,171) 0 1,087 952 1,128 570 1,725 1,240
Taxes (295) 0 274 240 284 143 434 312
Effective tax rate 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2%
Profit After Tax (876) 0 813 712 844 426 1,291 928
Net Profit margin -49.7% 0.0% 12.3% 10.9% 11.4% 7.0% 15.6% 12.4%
EPS (`) (6.8) 0.0 6.3 5.5 6.6 3.3 10.0 7.2
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Balance sheet
Year to March (` Mn) FY18 FY19 FY20 FY21E FY22E FY23E
Share capital 120 124 248 248 248 248
Networth 7,612 11,051 12,724 13,434 15,918 19,119
Debt 393 - - - - -
Sources of funds 8,489 11,632 14,554 15,607 18,155 21,720
Gross block 6,300 10,151 12,574 13,408 13,803 14,799
Net block 5,249 8,481 9,810 9,510 8,726 8,226
Investments 7 2 2 2 2 2
Working capital 2,751 3,909 4,247 7,119 8,951 12,862
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Relaxo lies in D2 “Zone of Safety” Relaxo is in the “Zone of good, not great”
Source: Ambit Capital research, Company Source: Ambit Capital research, Company
Relaxo Footwears Ltd (RLXF IN, SELL) Aditya Birla Fashion and Retail (ABFRL IN, SELL)
850 300
750 250
650 200
550
150
450
100
350
250 50
150 0
Jun-17
Mar-18
Jun-18
Mar-19
Jun-19
Mar-20
Jun-20
Sep-17
Dec-17
Sep-18
Dec-18
Sep-19
Dec-19
Sep-17
Dec-17
Mar-18
Dec-18
Jun-17
Jun-18
Sep-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Relaxo Footwears Ltd Aditya Birla Fashion and Retail Ltd
Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research
Titan Co Ltd (TTAN IN, BUY) Trent Ltd (TRENT IN, BUY)
1,600 900
1,400 800
1,200 700
1,000 600
500
800
400
600
300
400 200
200 100
0 0
Jun-17
Jun-18
Jun-19
Jun-20
Sep-17
Dec-17
Mar-18
Sep-18
Dec-18
Mar-19
Sep-19
Dec-19
Mar-20
Jun-17
Sep-17
Dec-17
Mar-18
Dec-18
Jun-18
Sep-18
Mar-19
Sep-19
Dec-19
Jun-19
Mar-20
Jun-20
Titan Co Ltd Trent Ltd
Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research
Jubilant Foodworks Ltd (JUBI IN, BUY) Bata India Ltd (BATA IN, SELL)
2,100
2,000
1,900
1,700
1,500 1,500
1,300
1,100 1,000
900
700 500
500
300 0
Jun-17
Sep-17
Mar-18
Jun-18
Sep-18
Mar-19
Jun-19
Sep-19
Mar-20
Jun-20
Dec-17
Dec-18
Dec-19
Jun-17
Sep-17
Dec-17
Mar-18
Dec-18
Dec-19
Jun-18
Sep-18
Mar-19
Jun-19
Sep-19
Mar-20
Jun-20
Avenue Supermarts Ltd (DMART IN, SELL) PVR Ltd. (PVRL IN, SELL)
3,000 2,500
2,500 2,000
2,000
1,500
1,500
1,000
1,000
500 500
0 0
Jun-17
Jun-18
Jun-19
Jun-20
Sep-17
Dec-17
Mar-18
Sep-18
Dec-18
Mar-19
Sep-19
Dec-19
Mar-20
Mar-18
Mar-19
Mar-20
Jun-17
Jun-18
Jun-19
Jun-20
Sep-17
Dec-17
Sep-18
Dec-18
Sep-19
Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Mar-19
Jun-17
Mar-18
Jun-18
Jun-19
Mar-20
Jun-20
Sep-17
Dec-17
Sep-18
Dec-18
Sep-19
Dec-19
Explanation of Investment Rating - Our target prices are with a 12-month perspective. Returns stated are our internal benchmark
Investment Rating Expected return (over 12-month)
BUY We expect this stock to deliver more than 10% returns over the next12 months
SELL We expect this stock to deliver less than or equal to 10 % returns over the next 12 months
UNDER REVIEW We have coverage on the stock but we have suspended our estimates, TP and recommendation for the time being
NOT RATED We do not have any forward-looking estimates, valuation, or recommendation for the stock.
POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
Note: At certain times the Rating may not be in sync with the description above as the stock prices can be volatile and analysts can take time to react to development.
Disclaimer
This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital Private Ltd. Ambit Capital Private Ltd. research is disseminated and available
primarily electronically, and, in some cases, in printed form. The following Disclosures are being made in compliance with the SEBI (Research Analysts) Regulations, 2014 (herein after referred to as the
Regulations).
Disclosures
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Regulations, is also engaged in the business of providing Stock broking Services, Portfolio Management Services, Merchant Banking Services, Depository Participant Services, distribution of Mutual
Funds and various financial products. Ambit Capital is a subsidiary company of Ambit Private Limited. The details of associate entities of Ambit Capital are available on its website.
Ambit Capital makes its best endeavor to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes
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views expressed herein and the statements made herein by the research analyst may differ from or be contrary to views held by other businesses within the Ambit group.
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The analyst(s) authoring this research report hereby certifies that the views expressed in this research report accurately reflect such research analyst's personal views about the subject securities and
issuers and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report.
The analyst (s) has/have not served as an officer, director or employee of the subject company in the last 12 months period ending on the last day of the month immediately preceding the date of
publication of this research report.
The analyst(s) does not hold one percent or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report.
Research Analyst views on Subject Company may vary based on fundamental research and technical research. Proprietary trading desk of Ambit Capital or its associates/group companies maintains
arm’s length distance with the research team as all the activities are segregated from Ambit Capital research activity and therefore it can have an independent views with regards to Subject
Company for which research team have expressed their views.
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