When Titan surprised this month coming out unscathed from the impact of demonetisation and posting solid topline growth for December quarter, it confirmed that India’s discretionary spending story thrived through a tough phase of cash squeeze in the domestic economy.
Some other data points also confirm this. The much-talked-about Aamir Khan movie ‘Dangal’ crossed the Rs 300 crore mark during the December quarter to become the highest grosser of 2016.
This January, India’s car sales grew 10 per cent, with C2 category cars – those priced between Rs 8 lakh to Rs 9.5 lakh – growing 22.8% to 48,100 units from 39,145 units in the same month last year. Growth in this segment was driven by cars such as the Ford EcoSport, Hyundai Creta and the Maruti Suzuki Ciaz. The three cars saw a 20 per cent – plus growth in sales during the month.
Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, has underlined this trend in his blog, saying: “The growth of the middle class and rising incomes in many emerging markets mean more discretionary income is available for leisure pursuits. We think this area represents interesting opportunities for investors – one that’s quite fun to explore.”
Is it a theme that is going to stand out as India comes out of the demonetisation pain? Is leisure spending going to emerge the next best bet for equity investors?
Investment gurus are pretty confident themes like leisure spending and discretionary consumption are going to work in an economy, where the per capita income is projected to cross Rs 1 lakh in FY17 from Rs 93,231 in FY16, Rs 86,879 in FY15, Rs 79,412 in FY14 and Rs 71,050 in FY14.
Cinema chains, high-end bike producers, operators of theme parks and quick service restaurants (QSR) stand out within this theme.
Ever since India slapped the cash ban on November 8, share prices of PVR, Westlife Development, Eros International, Wonderla Holidays and Jubilant FoodWorks climbed 1.30 per cent, 15.20 per cent, 9 per cent, 1 per cent and 2 per cent, respectively, till February 10.
Market watchers believe the dining out culture is likely to grow fast in India.
In his blog, Mobius said quick-service restaurants are the name of the game in India. They have experienced a compounded annual growth rate of 25 per cent. About half of India’s total population eats out at least once every three months and in bustling urban metro areas, the number rises to eight times in a month. With a young population, rising disposable incomes and more women in the workforce, it’s easy to see why the ‘eating out’ culture looks set to continue growing in India.
Multiplex chain operator PVR recently reported a 20.76 per cent drop in consolidated net profit at Rs 23.89 crore for the December quarter due to higher expenses. The company had reported a consolidated net profit of Rs 30.15 crore for the corresponding quarter of the last financial year. PVR’s total income from operations during the quarter under review grew 7.44 per cent to Rs 537.71 crore from Rs 500.46 crore for the same period last financial year.
Comparing Bollywood with Hollywood, Mobius said, “Movies produced in the United States (Hollywood) have depended on international sales when revenue at home has been disappointing. Today, China, India and other countries in and outside of Asia are beginning to compete. The ‘Bollywood’ name has become globally recognisable with an annual output of more than 1,000 films, which is double that of Hollywood, although Bollywood’s revenues are much lower and only about 15 per cent of which come from international sales. Low cost of producing animation in India and other Asian countries has added another dimension to the film industry that could spur further growth.
Some analysts say Jubilant FoodWorks, PVR, Westlife Development and Wonderla are some of the cool bets to play under the discretionary spend theme.
Global brokerage houses such as CLSA, Credit Suisse and Morgan Stanely are bullish on Jubilant FoodWorks.
CLSA has maintained a ‘buy’ rating on Jubilant FoodWorks and raised target price to Rs 1,250 from Rs 1,100 earlier. Morgan Stanley and Credit Suisse are overweight on Jubilant FoodWorks with target prices of Rs 1,230 and Rs 1,150, respectively.
Morgan Stanley believes the impact of the currency replacement programme was rather lower than estimates and sees a 100 basis points increase in operating margins for the company after GST implementation.
Jubilant FoodWorks operates Domino’s Pizza and Dunkin’s Donuts chains in India under franchising agreement with the parent companies.
Westlife Development reported 13.20 per cent year-on-year increase in gross sales at Rs 238.04 crore for the quarter ended December 31, 2016. It had reported revenue of Rs 210.28 crore in the same quarter last year.
Domestic brokerage house Anand Rathi Financial Services is bullish on Westlife Development with a target price of Rs 270 (Rs 210 earlier).