ICRA upgrades Indian retail sector outlook to stable from negative

The Indian retail sector is expected to surpass its pre-pandemic levels of revenues and earnings in fiscal 2022-23 (FY23) following two years of sub-par financial performance, according to rating agency ICRA, whose analysis showed retail firms in its sample set will see a rise in sales of 12-13 per cent year over year (YoY) in FY23 and a 5-6 per cent increase above pre-pandemic levels.

The retail firms’ operational profit margins (OPMs), driven by the advantages of operating leverage, are anticipated to increase YoY by 150 bps to 8.2 per cent. As a result, the rating agency has revised the sector’s outlook to stable from negative.

India’s retail sector is expected to surpass its pre-pandemic levels of revenues and earnings in fiscal 2022-23 following two years of sub-par financial performance, according to ICRA, whose analysis showed retail firms in its sample set will see a rise in sales of 12-13 per cent year over year in FY23 and a 5-6 per cent increase above pre-pandemic levels.

“Driven by pent-up demand, improving vaccination coverage and a pick-up in economic activity, the retail sector reported a healthy recovery in sales, post the second COVID-19 wave. While the operations were temporarily affected by the third wave in January and February 2022, the sector bounced back swiftly in March 2022, said Sakshi Suneja, vice president and sector head, ICRA.

“Consequently, sales recovered to up to 90 per cent of pre-COVID levels in FY2022. With the footfalls breaching the pre-pandemic levels in Q1 FY2023, retail entities in ICRA’s sample set are expected to witness a 5-6 per cent revenue growth in FY2023 vis-à-vis the pre-COVID period of FY2020,” she said.

“Notwithstanding the near-term challenges in terms of inflationary pressures, positives in the form of favourable demographics, rising disposable incomes, and low penetration of organised retail, augur well for the prospects of the industry over the medium term,” she added.

The level of discounting by the retail industry remained low during FY2021 and FY2022 compared to FY2020 as retailers attempted to protect their gross margins against the backdrop of reduced sales, ICRA said in a release.

With footfalls and revenues surpassing the pre-pandemic levels in FY2023, ICRA expects the level of discounting to go up as retailers compete to grab a higher share of the consumer’s wallet.

Driven by a buoyant demand outlook and recovery in footfalls, retailers are expected to continue with their store expansion plans in FY2023.

Entities in ICRA’s sample set are expected to increase their capital spending by over 45 per cent in FY2023, with store additions largely targeted towards tier-II and tier-III towns.

Fibre2Fashion News Desk (DS)