The management forecast same-store sales growth to moderate in FY12-13E to ~6% - driven by the broad macro environment slowdown.
Gross margins have improved in FY11, owing to better mix (rationalizing electronics) and price hikes in fashion. We expect these to remain steady at ~35.3-35.4% in FY13- 14E. Interest expenses are forecast at ~11.5% of average debt.
Between FY11-14E, the parent (lifestyle and home) business will generate an RoCE of 7-8%, and an RoE of ~2-3% - sub-optimal in our view, to a large extent on account of the home business. That said, we do see minor improvements in return ratios year on year.
Capex costs have been forecast at ~Rs2250 / sq foot - higher than historical trends given the repositioning of stores. We note that we are slightly higher than mgmt guidance in our capex / sq ft forecasts.
Capex / sq foot for Big Bazaar and Food Bazaar stores is expected to be ~Rs1650 / sq ft – again higher than earlier levels.
Over the next 2-3 years, higher food contribution is likely to support net margins, even though it has lower GMs.
Inventories / sq foot is assumed ~Rs2050-2100 – we don’t have any improvement in these for the forecast years in our model.
RetailMantra doesn’t give the company any benefit of working capital improvement going forward. Mgmt expects inventory days to
reduce marginally in this current fiscal – and hopes of getting close to 100 days of inventory in the medium to long term
