'Management commentaries suggest an optimistic outlook, general election key risk'

Going ahead, management commentaries suggest an optimistic outlook, with the general election being the key risk to their strategy going ahead.

The Interim Budget 2019 was rationally stable in its fiscal approach with the fiscal deficit target for FY19 and FY20 fixed at 3.4 percent of the GDP. The Budget was inclined towards consumption and will be good for lower-end consumption, rural agri-related, consumer staples, two-wheelers and real estate businesses.

In its latest report, UN stated that ‘India is among the several countries that stand to benefit from the ongoing trade tensions between the world's top two economies’, i.e, the US and China. It will add to the country’s growth story.

Also, the positive macro-economic factors like low inflation, higher GDP growth, controlled crude oil prices and stable currency will strengthen the economy further. However, auto sales number for December 2018 came on a weaker side, which is worrisome.

Going ahead, management commentaries suggest an optimistic outlook, with the general election being the key risk to their strategy going ahead. Higher money in the hands of middle-income people and increased government expenditure before elections is likely to boost consumption driven stocks. We have RBI policy ahead this week that will further help in assessing the market direction.

Investors should stick to quality companies with consistent performance and prudent management.

Aditya Birla Fashion & Retail | Rating: Buy | Target: Rs 242

ABFRL brings together Madura Fashion and Pantaloons Retail. It is the custodian of several icons, including the top fashion brands of India - Louis Philippe, Van Heusen, Allen Solly, Peter England and other high-end brands.

With its operations across segments and a wide retail network, it is appropriately placed, to benefit from India’s growing branded apparel industry.

In the current quarter, the consolidated revenue of the company grew 23 percent YoY to Rs 2,280 crore. Also, the EBITDA margin expanded 14bps to 7.6 percent on account of controlled rent, employee and other expenses.

Pantaloons reported its highest ever SSSG, of 17 percent, driven by product improvement and strong brand enhancement. Madura Lifestyle reported its highest ever Q3 revenue, driven by 8 percent SSSG growth. We expect this growth momentum to continue into H2FY19, backed by strong SSSG growth and network expansion.

During the quarter, the company added 14 Pantaloons stores and 62 Madura Lifestyle brands stores, taking the totals to respectively 302 and 1,959.

We raise our FY19e revenue growth for Madura Lifestyle brands to 11 percent (earlier 9.7 percent). We are optimistic about Pantaloons’ SSSG picking up as the newer stores will be included in calculations from Q1FY20 as well.

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