Companies

Credit outlook negative for value and lifestyle fashion retailers: ICRA

Our Bureau New Delhi | Updated on October 07, 2020

Rating agencies Crisil and ICRA said regulatory support and demand recovery is needed to improve the credit profile of corporates

According to the rating agency, outlook ofr good and grocery retail is normal

ICRA has given a negative credit outlook on value and lifestyle fashion retailers, while its credit outlook on the food and grocery retailers is normal.

In a report the rating agency pointed out that shutdown of malls and closure of non-essential stores in the first quarter of the fiscal year severely impacted revenues and profitability of the Indian retail industry.

It said that value and lifestyle fashion retailers are expected to witness a 35-42 per cent decline in revenues in FY2021, with a 300-500 bps decline expected in their operating profit margin (OPM), the statement added.

Given the pronounced revenue decline, fashion retailers will witness a material weakening in their credit profile in FY2021, though some have strong liquidity and/or financial support from a strong parentage, ICRA said in its report.

Sakshi Suneja, Assistant Vice President, ICRA said, value and lifestyle fashion retailers reported a whopping 81 per cent Y-o-Y revenue decline in Q1 FY2021, adversely impacted by the lockdown during the first five months of Q1 FY2021.

Though revenues in Q2 FY2021 improved sequentially, they were substantially lower on a Y-o-Y basis, in the backdrop of local lockdowns and restrictions.

Suneja added that a meaningful ramp-up in sales is expected from Q3 FY2021, led by increased demand during the festive season and substantial easing of restrictions under the new unlock guidelines with effect from September 1,

However, given the stark revenue decline and changing consumption patterns with increased demand for casual wear and slowdown in demand for formal wear, the retail industry continues to face challenges.

Kinjal Shah, Vice-President, ICRA, said the pandemic has accelerated adoption of online shopping, leading to an increase in contribution of online sales. Retail entities have also curtailed their store expansion plans for FY2021. “As per our research, the value and lifestyle fashion retailers have deferred around Rs 19.7 billion worth of capex plans towards store additions in FY2021 post-Covid.”

The rating agency said that aided by significant easing of lockdown restrictions, which has is facilitated sales of non-food categories and the onset of the festival season, the revenue growth of food and grocery retailers is expected to revert to a positive trajectory from H2 FY2021 onwards.

ICRA expects retailers to witness a revenue growth of 3-7 per cent in FY2021. The share of non-food categories in the overall revenue mix is, however, expected to remain lower on a Y-o-Y basis, constrained by the slowdown in discretionary spends, the report added.

Published on October 07, 2020

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