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India Retail Outlook Turns Negative as Consumption Wanes
Jan 16, 2013 3:11 AM
By Dilipp S Nag
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RAPAPORT... The outlook for the Indian retail sector in 2013 remains negative, driven by continuing weakness in consumer spending due to rising inflation, marginal real wage growth and a weak macroeconomic environment, projects India Ratings, a Fitch Group Company.
The ratings agency stated that revenue growth for most industries dependent on consumer spending – including retail – is expected to be muted. Median earnings before interest, taxes, depreciation, and amortization (EBITDA) margins for the sector are likely to contract by 50 to 75 basis points (bps) in 2013, while overall revenue is likely to grow between 3 percent and 8 percent year on year across large retailers, it noted.
Sales in 2012 were driven by discount offers and the trend is likely to continue this year, providing volume growth at the cost of margin, India Ratings said. Retailers focusing on the luxury or premium sector may be worst hit than those focusing on other market segments, with an expectation of a flat to negative revenue growth rate.
The agency also said that the liquidity profile of retailers was expected to stretch from continuing margin contraction and revenue deterioration. With cash flow already negative, retailers' credit metrics will remain under pressure and their inability to boost cash flows immediately, as well as their high leverage levels, might compel them to look for equity funding, it noted.
Working capital cycle will also remain under pressure during 2013 as new stores will generate returns only after 12 to 15 months and sales will remain slow at existing stores, India Ratings explained. Inventory levels are likely to increase moderately this year on account of slowing sales and new store openings that will require retailers to keep higher levels of stock on hand.
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Tags:
Dilipp S Nag, Fitch, India, India Ratings, luxury, retail, retailers, Sector
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