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The shares of retail stocks Aditya Birla Fashion, Shoppers Stop, Future Consumer and Future Retail have gained 7-17 per cent in the last one week — higher than the 1.2 per cent and 1.4 per cent rise seen in Nifty 50 and Nifty 500, respectively — following a string of positive news, such as improved outlook for Aditya Birla Fashion’s businesses and interest of foreign retail giants in Indian e-commerce and retail companies. Among all the stocks, shares of Aditya Birla Fashion have gained the most — up 42 per cent — in the last one month, while others including Trent are up 5-10 per cent.
Outlook for Aditya Birla Fashion’s businesses, namely, Madura and Pantaloons, is improving and news of sale of the grocery business under the ‘More’ brand will further help strengthen the retail business, analysts said. However, only long-term investors are advised to take exposure to the stock due to the huge run-up seen in it.
Besides, Kotak Institutional Equities and JM Financial have a target price of ₹220 on the stock, which is close to its current market price of ₹200.95.
“We remain bullish as the signs of ‘turnaround’ are now even more visible and should help end the stock’s long-drawn under-performance soon,” said JM Financial.
Analysts have also given a thumbs up to the news of buying interest of Google and Paytm Mall in Future Retail, even as overall performance of the company in the June 2018 quarter was only modest. Abhijeet Kundu, analyst at Antique Stock Broking, maintains a ‘buy’ recommendation on Future Retail (FRL).
Global investors’ support
“In our view, if the deal goes through, it will be a strategic advantage for the company. Future Retail generates data on shopping behaviour of customers visiting its stores.
Strong data analytics capability of online players such as Google, Amazon and Alibaba will help FRL fuel its organic growth story.
“We believe, irrespective of any players coming on board, FRL will likely see a re-rating on the back of strategic support from such global investors of high pedigree,” he said.
Other retail players such as Trent, Avenue Supermarts and Shoppers Stop are also on strong footing and their business prospects continue to remain bright.
ICICI Direct has upgraded the sales estimate for Trent following management’s robust commentary on accelerated store expansion plans across all its formats (Westside, Zudio and Star Market), and sees improvement in profitability for joint venture/associate (THPL & Zara) followed by positive operating leverage. Consequently, it expects 11 per cent upside in Trent shares.
Mixed view on D-Mart
While Avenue Supermarts continues to outperform its peers — both in terms of business and stock performance, analysts now have mixed views on the stock. While the company remains JM Financials’ favoured consumer pick (target price of ₹1,705), Motilal Oswal recommends ‘sell’ on the stock with a target price of ₹1,117.
“The stock is expensively valued at 71x/54x FY20/21E P/E. At such rich valuations, we believe there is limited room for re-rating. Maintain ‘sell’,” Chintan Modi, analyst at Motilal Oswal, said. There are no recent views on the shares of Shoppers Stop and Future Consumer.
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