Organised retail sector in India is expected to witness strong growth in the coming years, and segments like grocery and apparels are best positioned to reap the benefits, says a Jefferies report.
According to the brokerage, organised retail account for only 7 percent of the current market size and is set for robust growth in the years to come as per capita income of the country also increases.
“We believe that Indian organised retail is in a sweet spot, especially post demonetisation and GST, given the under-penetration at 7 percent of total trade and favourable macro,” Jefferies said in the report, adding that grocery and apparel segments should do well for several years.
Besides, India’s favourable demographics in terms of a young population (average age of 28) and increasing urbanisation are added advantages and in such a scenario, retailers with higher discretionary categories should benefit, the report added.
“Organised retail is still in the midst of a secular growth journey with several segments on the cusp of strong growth as per capita income rises past the crucial US $2,000 threshold that has heralded strong growth in most other markets,” the report said.
Moreover, most retailers have also changed their business models, and instead of reckless expansion, they are shutting loss-making stores, increasing private label mix and are using data analytics better, it noted.
The brokerage said more consolidation and M&A activities are likely in the sector, particularly between online and offline players, benefiting large players in the industry.
The report said strong growth prospects for the retail sector will keep the valuations expensive.
“In the current business environment, post the implementation of GST, we expect organised players to gain market share from unorganised players at a faster pace,” the report noted.
Though competition from online retail players is expected to continue but “sanity is expected to prevail in the near term” it added.
“We have already started witnessing consolidation in the online retail space (Flipkart acquiring Myntra and Jabong, among others) and believe that only a few online retailers will ultimately survive,” the report noted.