International brokerage Bernstein has begun tracking Indian retail and restaurant companies, seeing growth potential beyond the country's top 10% of the wealthiest and 40 major cities.
According to Bernstein, it's not weak demand that's holding back the purchasing power of India's middle class, but a lack of affordable products — a supply-side gap that represents a huge growth opportunity for companies ready to exploit it.
Retail Shine: Bernstein has picked DMart and Trent as the top stocks in this space, expecting both to lead on revenue generation and efficient inventory management. The brokerage has set a price target of Rs 6,300 for DMart, implying a 27% upside from current levels, and Rs 8,100 for Trent, implying an 18% upside.
But not all retailers are viewed favorably. Bernstein has an “underperform” rating on Aditya Birla Fashion & Retail Ltd. (ABFRL), with a target price of Rs 270 and a downside risk of 16%, citing concerns about the company's high debt load from acquiring multiple brands.
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Retail Good/Bad: Jubilant Foodworks and Devyani International are Bernstein's top picks among restaurant companies, owing to their strong positions in untapped markets like chicken and efficient cost structures. The research firm has given Jubilant a price target of Rs 800 with 21% upside potential and Devyani International a price target of Rs 210 with 18% upside potential. It has given both the companies an 'outperform' rating.
Meanwhile, Westlife Foodworld, which operates McDonald's in western and southern India, is being hampered by heavy capital spending to open new restaurants, Bernstein said. Bernstein rates the company “underperform” and has a target price of 700 rupees, which would represent a downside of 19%.
Meanwhile, Pizza Hut operator Sapphire Foods faces what Bernstein describes as a “long, tough” road to recovery. The company is valued in line with the market, with a target price of Rs 1,700, giving it a modest upside of 5%.
Price Activity: DMart shares were down 0.52% at opening trade on Wednesday, while Trent rose 2.53% and Aditya Birla Fashion Retail fell 0.9%.
Jubilant Foodworks shares traded almost flat while Devyani shares rose 1.49%. Westlife shares fell 1.12% and Sapphire Foods was down 0.39%.
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