Retail Giant Set to Expand in Southern India with Strong Growth Outlook

Kerala Market Shows Promising Growth Opportunities

A recent meeting with retail company GK revealed a high level of confidence in the Kerala market, with plans to expand in a significant way. The company is expected to open around 100 stores in Kerala, with a phased entry into Tamil Nadu to ensure store economics are protected.

Key Takeaways from the Meeting

• Premiumization: The demand environment is currently driven by volume, but premium apparel is growing the fastest, indicating a shift towards higher-end products.
• QC Contribution: QC contributes around 3-4% of store revenue on average, with a range of 2-9%, and attracts around 20% new customers.
• Private Labels: Private labels remain a key driver of margins, with healthy penetration across core categories, although adoption varies by segment.
• Competitive Positioning: The company has a clear value gap compared to local cooperatives and a differentiated role compared to DMart, supporting its competitive positioning.
• Execution: The company's execution remains strong, with low inventory loss (shrink) of around 0.59% and a high return on capital employed (ROCE) of around 70%, supporting a fully company-operated model.

Growth Outlook and Investment Advice

The company's earnings estimate remains largely unchanged, with a projected revenue/EBITDA/PAT CAGR of 19%/21%/26% over FY25-28E. The target price is set at INR 175, based on a DCF-based valuation. The investment advice is to BUY, indicating a positive outlook for the company's growth prospects.

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