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India Ratings has maintained a negative outlook on the Indian retail sector for 2013.
This is driven by continuing weakness in consumer spending due to rising inflation, marginal real wage growth and a weak macroeconomic environment.
The rating levels of India Ratings-rated retail companies have already factored in revenue declines and margin pressures; this contributes to the high proportion of Stable Outlooks. Some companies with deteriorated credit metrics also have Stable Outlooks as the agency has already taken sufficient action to accommodate foreseeable stress.
India Ratings expects muted revenue growth for most industries dependent on consumer spending including retail. The trend in Private Final Consumption Expenditure (PFCE) is even more worrisome since out of the last six quarters, four quarters had the lowest PFCE growth rate in the last 34 quarters. PFCE was at an eight-year low at 3.68% at end-Q213. India Ratings does not expect a meaningful improvement in PFCE in 2013.
Median EBITDA margins for the sector are likely to contract by 50bps-75bps in 2013, while overall revenue is likely to grow at 3.0%-8.0% yoy across large retailers.
Sales in 2012 were driven by discount offers; and the trend is likely to continue in 2013, providing volume growth at the cost of margin. Retailers focussed on the luxury or premium segment may be worst hit than those focussing on other segments, with an expectation of a flat-to-negative.
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