Organised food and grocery retailers are expected to see revenue growth of 14-15% in the next fiscal year, driven by healthy demand from small towns despite competition from e-commerce platforms.
Mumbai, Dec 22 (PTI) A healthy demand from small towns will help brick-and-mortar food and grocery retailers log 14-15 per cent revenue growth next fiscal in spite of rising competition from e-commerce platforms, says a report.
Last year, the segment clipped at a record 30 per cent and the projected 14-15 per cent growth, translating to three years of strong growth on the trot. This year the industry is expected to clip at 15 per cent, Crisil Ratings said in a note on Friday.
But modest demand from the discretionary segment comprising general merchandise such as crockery, home appliances and utensils, and apparel, due to inflationary pressures, will keep their operating margins range-bound at 6-6.5 per cent in the current and next fiscals, down from 6.9 per cent last fiscal, the report said.
Food and non-food grocery segments contribute 75-77 per cent of revenue for F&G retailers, and the balance from discretionary products, which offer relatively higher margins.
Strong cash flows and steady working capital cycle will limit the players' dependence on external debt, ensuring strong balance sheets and stable credit profiles, said the report based on an analysis of six players that account for a fourth of the Rs 2.4-lakh-crore organised F&G market.
According to Poonam Upadhyay, a director with the agency, healthy demand outlook and low penetration will ensure mid-teen revenue growth this fiscal and the next. She also expects area addition to increase 20 per cent cumulatively over fiscals 2024 and 2025 on top of a substantial 40 per cent increase in fiscals 2022 and 2023.
Meanwhile, retailers are also expanding into omnichannel platforms to compete with commerce players.
According to Shounak Chakravarty, an associate director with the agency strong cash flows and well-managed working capital will obviate any need for debt-raising, leading to continued healthy balance sheets.
Capex, mostly towards online expansion, is estimated at Rs 5,500 crore over fiscals 2024 and 2025 compared to Rs 6,000 crore over fiscals 2022 and 2023.
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