Indian Retail Sector - Short Term Hiccups Apart; Long Term Credit Drivers Intact: CARE Ratings

CARE Ratings expects the long-term outlook for the Indian retail sector to remain positive on the back of rising incomes, favourable demographics, entry of foreign players and increasing urbanisation in India. Going forward, revival in the consumer sentiments, curtailing of debt funded expansion plans, clarity on the Foreign Direct Investment (FDI) policies by the Government of India and efficient management of the supply chain is critical for the sector. Currently, however, the organized retail sector in India which accounts for about 8% of the overall retail market in India is going through a difficult phase - high real estate costs, faltering domestic consumption and limited infrastructural capabilities which curtail the potential for profitable growth. CARE's ratings on entities in retail sector already factor-in the slower growth in revenues, deleveraging of balance sheets, introduction of FDI in the sector along with significant support from the parent companies; the ratings in the sector are expected to be stable during FY2014-15 (refers to the period April 01 to March 31).

The Indian retail industry is currently going through a difficult phase on account of reasons like high real estate costs, faltering domestic consumption, slower revenue growth, increasing pressure on margins and moderate capital structure. Going forward, from credit perspective, increase in government spending, revival in the consumer sentiments resulting in higher consumer spending, reduction of debt along with efficient management of the supply chain and disposal non-core business shall be critical for the retail sector.

Powered by Capital Market - Live News