Branded apparels - Outlook CY21: Cautious optimism - ICICI Securities

Apparel retail companies are likely to see gradual demand recovery in CY21 with concerns around Covid may recede by mid-CY21. After sharp >40% YoY decline in CY20, revenues may inch towards CY19-levels in CY21. Companies have partially resumed purchases for SS'21 collections, given demand optimism seen during recent festive sales. Most companies strengthened their balance sheet in CY20 via equity raise and are likely to resume aggressive expansion in CY21 as the market is still hugely unpenetrated. Online / e-commerce sales seem poised to continue the growth momentum seen in CY20. We remain cautiously optimistic on apparel retail for the coming year. Top picks: Trent, V-Mart, ABFRL.

Top key trends for CY21:

- Acceleration in distribution network: After a halt in CY20, companies are likely to accelerate store additions in CY21 as the market is still hugely unpenetrated. ABFRL may add 300-400 EBOs and 30-40 Pantaloons stores. Trent may add 25-30 Westside stores and 70-80 Zudio stores while V-Mart may add 40-50 stores in CY21.

- Footfalls to increase as concerns around Covid may recede by mid-CY21.

- Greater adaptability and acceptability of e-commerce as a channel: Online / e-commerce sales seem poised to continue the growth momentum seen in CY20, with its share increasing from low-single digit to low-double digit. Accordingly, companies may invest further to strengthen their online capabilities.

- Value-fashion retail may gain momentum as price-conscious consumers from the unorganised sector get first experience of organised retail.

- Lifestyle brands seek to make WFH fashionable: Companies have introduced WFH wear as a new category, which provides all-day clothing for remote working, conference calls /virtual meetings. This may help reduce huge unsold inventories.

- Women wear, kids wear, casualwear, athleisure, sportswear are expected to grow faster than the relatively matured formal menswear market.

- Few cost savings (e.g. winding-up of unprofitable stores, rationalisation of travel, repairs, warehousing and discretionary spends, re-negotiated rents etc) may be structural and companies are likely to return to pre-Covid profitability in CY21.

- Companies may see working capital release with sales improving from H2FY21.

- Industry consolidation: Companies with stronger balance sheet may seek opportunity to gain market share.

Source : Equity Bulls

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