With this risk behind it, the Street’s attention will turn to the recovery and market share trajectory for the company. While sales have started recovering from August, it will take a few months more for volumes to reach the pre-Covid levels. The company reported a 4.5 per cent drop in sales in Q2 and lost revenues in the earlier part of the lockdown, given that its 60,000 retail outlets were largely present in metro, tier1 and tier2 cities.
While the urban recovery should help the company improve its share, analysts highlight that sharp gains are unlikely given stiff competition in the men’s and women’s innerwear categories. Edelweiss
Research also highlights limited distribution expansion potential given its positioning.
However, margins, which expanded 311 basis points in Q2, to 22.3 per cent are expected to remain at elevated levels. This is supported by price hikes, improved realisations, and a higher proportion of the athleisure segment.
A volume and margin recovery is factored into the stock, which has gained 23 per cent since the start of November. At current levels, the stock is trading at 58x its FY22 earnings estimates. Investors should await a consistent improvement in volumes/revenues and a better entry point before considering the stock.