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Ratings agency Fitch has assigned a stable outlook to the retail
sector for 2012 as factors such as expected sales growth-driven
expansion and efficient working capital management are likely to benefit
retail companies.
Despite the economic downturn, Fitch expects the food and value segments to provide a defensive play.
According to the '2012 Outlook:India Retail' report, consumer discretionary income is likely to be lower due to higher inflation and interest rates.
"However, inflation provides a direct fillip to same-store sales growth. Growth will also be helped by capital expenditure undertaken by retailers," it said.
During the year, margins for most retailers are likely to remain stable.
"Fitch expects margin pressures created by extended discounting periods to push volumes growth, to be mitigated by measures such as recent price hikes and softening in raw material prices [mainly cotton]," it said.
Improvements in operating cost structure (rentals) and increasing the proportion of private labels would also contribute to margins.
Fitch expects most retailers to generate negative cash flow from their operations in 2012. However, the deficit is expected to be lower compared to previous years, backed by stable margins and slightly improved working capital management.
"In 2011, most companies tied up additional space requirements for the next two to three years, citing lower availability of space in strategic locations, resulting in a higher outflow on account of lease deposits," it said.
The outlook could be revised to negative if economic conditions worsen, affecting revenue growth, leading to margin contraction and adversely impacting retailers' cash flow, Fitch added.
Source: http://business-standard.com/india/news/indian-retail-sector-outlook-in-2012-stable-fitch/155599/on