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Axis selects Trent, Westlife Foodworld, and Relaxo as top retail stocks post Q4 results

Following the conclusion of the March quarter (Q4FY24) results season, brokerage house Axis Securities has identified Trent, Westlife Foodworld, and Relaxo Footwear as its top picks in the retail sector.

In its review note, the brokerage highlighted a mixed performance among retail companies. Premium retailers have sustained their growth momentum, while value retailers are gradually recovering, and Quick Service Restaurants (QSR) continue to face challenges. The companies anticipate rural growth to improve gradually due to increased government spending, easing inflation, and higher urban remittances. However, EBITDA margins have been under pressure due to negative operating leverage stemming from subdued topline performance.

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Axis Securities reported that consumer demand remains weak, particularly affecting the discretionary sector, with a significant impact on QSR, although the value segment has shown some signs of recovery. The premium segment continues to perform strongly, while the performance of the value segment varies. Despite the subdued environment, most companies in its coverage are maintaining or increasing store opening guidance, focusing on smaller towns, indicating strong long-term growth prospects.

The brokerage outlined several factors that make the retail sector an attractive investment opportunity. The rapid formalization of the largely unorganized Indian retail market presents significant potential, especially in smaller cities and towns where consumers are increasingly opting for branded products due to rising disposable incomes.

These smaller cities are experiencing faster growth than metros across various categories like apparel, QSR, and footwear, driven by higher aspirations and increased disposable incomes. The sector's structural growth is expected to continue, supported by higher per capita income, increased spending, and the growing participation of women in the workforce, leading to higher sales of women's wear.

Stock Picks:

1. **Trent**: Axis Securities has a ‘buy’ call on the Tata Group stock with a target price of ₹4,800. The brokerage expects strong revenue growth in the coming quarters, driven by Trent's focus on rapid store expansion and continued assortment renewal, leading to higher footfall. Additionally, the improvement in earnings profile across all formats, reduction in losses at Star Bazaar, and improved traction at the Inditex JV are positive indicators for the company.

2. **Westlife Foodworld**: The brokerage maintains a ‘buy’ call on the stock with a target price of ₹980. Axis is optimistic about WFL's strong future prospects, supported by its robust execution track record and growth initiatives. It anticipates healthy revenue and EBITDA growth driven by expanding categories like McDelivery and McCafe, leveraging delivery platforms, and increasing store openings in smaller cities.

3. **Relaxo Footwear**: Axis has a ‘buy’ call on the stock with a target price of ₹950. The company's revenue decreased marginally YoY, but EBITDA grew, driven by improved margins due to lower raw material costs. Axis expects demand to improve for Relaxo, especially in rural areas, with good monsoons.

Axis Securities remains bullish on these retail stocks, anticipating their continued growth and resilience in the evolving market landscape.

June 11, 2024 6 p.m. 421

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