Fashion retailers expected to end the financial year with an estimated 45 per cent year-on-year growth in sales, according to a report by ICRA. However, the profit margins are expected to be in the range of 7-7.3 per cent, the report added.
The ratings agency stated that in the first nine months of the fiscal revenue expansion was estimated 55 per cent led by seasonally strong Q3. But the revenue growth is expected to moderate sequentially due to a muted Q4.
Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, ICRA, said,“Driven by improved economic activity and an uptick in discretionary spends, the retail sector reported a robust 55 per cent year-on-year revenue growth in first nine months in FY2023. While this was admittedly partly led by a low base, it also reflects a sharp 35 per cent growth over the pre-pandemic period of 9M FY2020. “ She added that this favourable performance was also aided by nearly 5 million sqft of additional store space set up during FY2020-FY2022.
Inflationary pressure hits value-fashion segment
“Segment-wise, the revenue growth is led by premium brands in the metros/Tier-I cities. The value-fashion segment, on the other hand, is facing inflationary headwinds and reported a negative same-store-sales growth when compared with the pre-covid period of 9M FY2020,” she added.
With fashion retailers passing on raw material costs to consumers, the gross margins for the retailers in the first nine months of FY23 remained largely in line with the FY22 levels. Rental, employee costs and promotional expenses also saw a hike. “Consequently, despite robust revenue growth, OPMs of fashion retailers are likely to remain range-bound at around 7-7.3 per cent in FY2023, trailing the pre-pandemic OPM,” the report added.
“Entities in our sample set increased their capital spending to ₹14 billion in FY2023, implying a YoY expansion of 55 per cent. While players present in the value-fashion segment continued with their capex plans in FY23, ICRA expects some curtailment/re-calibration in capex spending by these players in FY24, till inflationary pressures ease,” Suneja added.
Online sales up
Online sales also continue to grow, though at a slower pace, with the waning impact of the pandemic. ICRA expects the share of online sales to inch up to 12-14 per cent of revenues by FY2024-25, compared to 8 per cent in FY2022. Online sales is unlikely to replace the brick-and-mortar sales any time soon.
Despite the sizeable capex plans, the credit profile of large, listed entities is expected to remain adequately supported by strong balance sheets on the back of healthy liquidity and strengthened net worth post the equity raising in FY2021, the report added.