Bernstein's Jignanshu Gor Bets On Retail And Restaurant Stocks Over FMCG
While FMCG players grew their distribution over the last decade, retail and restaurant stocks' growth story is still not over, said Gor.
The growth story for the retail and restaurant players is far from over, as there is a wider scope for increasing distribution and curating products to tap into a large segment of customers, according to Jignanshu Gor, group analyst at Bernstein SocGec.
The FMCG players are still expanding their distribution levels in India, while there is a large scope for offline distribution and catering to the value buyers and this makes the analyst bet on retail and restaurant stocks.
Speaking to NDTV Profit, the analyst said that most players in the FMCG industry have been focusing on catering to the top 10% of the Indian consumers. “This is visible in where their stores are located and how their products are priced.”
However, there is still a lot more left in terms of offline distribution growth and catering to value buyers. “We think the story for offline-led distribution growth and catering the value buyers across the income pyramid is far from over. That forms one of the key thesis that we have for identifying stocks which have the legs to go faster for a long term and justify the valuation to multiples that you see here,” Gor said.
The Bernstein analyst believes that there are some lead indicators, which will drive the demand for FMCG players from Q3 or Q4.
While the FMCG players have in a way been growing their distribution for the last decade or so, for the retail and restaurant stocks, the growth story is still not over, according to Gor.
“So there is harder work to do (for retail firms and restaurants) for curating products and increasing distribution, while maintaining the margins. The companies, who can demonstrate that, will be able to justify their growth potential and valuation,” he said.
On the margins and value creation in the dine-out and food delivery business segments for restaurants, Gor said, “What I would do is figure out the segmentation of the Indian consumer. This will be done by two axes. One axis is metro Vs tier 1 cities, and the second axis is the income pyramid. If your product is catering to the top 10% of the income pyramid, you would rather want to have dine-in as the preferred option because you want to give people the experience.”
Bernstein, last week, initiated coverage on the Indian retail and restaurant stocks. The global brokerage in its research note highlighted that there is a supply-side issue for the players in these sectors as spending by the Indian middle class is being held back due to the lack of more affordable and accessible products. The brokerage said that this offers the companies a significant growth opportunity.
The brokerage initiated coverage on seven stocks from both the sectors. Bernstein saw an upside for retail players like DMart and Trent.
In another note released on Wednesday and named Bharat 1.0, Gor and his co-author had mentioned that India’s per capita GDP is expected to grow to $4,500 in the next 5–7 years.
“Traditionally, the transition from a middle income country to an upper middle income country is considered as the inflection point. In the dollar per capita terms, it comes to roughly around $4,500 per capita,” Gor said.
This increase is poised to drive the inflection point of many consumer stocks.
“We just released a note yesterday talking about Bharat 1.0, where we have mentioned that we expect it to happen in the next five to seven years and that should drive the real inflection point of many of the consumer stocks from a product perspective,” he added.
