Aditya Birla Money neutral on Shoppers Stop

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Aditya Birla Money neutral on Shoppers Stop

Aditya Birla Money has maintained neutral rating on Shoppers Stop with a target of Rs 344, in its October 21, 2011 research report.

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Aditya Birla Money has maintained neutral rating on Shoppers Stop with a target of Rs 344, in its October 21, 2011 research report.

"Shoppers Stop Ltd (SSL) is one of the pioneers in organised retail in India and has chain of multi brand departmental stores spread predominantly in Tier 1 and Tier 2 cities. The company has presence in value retailing through it chain of stores under the name of Hypercity. As of FY11, the company has posted consolidated sales of Rs  23232.6 mn and PAT of Rs  431.9 mn."

"Rising disposable income, younger age profile and increasing urbanisation, the share of organised retailing is likely to grow from 4-5% in 2007 to 14-18% in 2015. In value terms, the organised retail industry is likely to grow from current $26 bn in 2010 to $65-80 bn by 2015 (Source: SSL AR, McKinsey).Overall, by 2015, retail industry market size will be $450bn. With two decades of operational history, SS is well spread across the country. The early entry benefits the company in form of best locations of stores (in terms of areas with large propensity to consume) and cheaper lease rentals in growing Indian cities. In addition, the company also benefits from strong brand visibility and reputation, which usually take longer time, so as to build the consumer confidence. The company can further increase its profitability with presence of levers like: (a) savings in procurement and better terms leading to reduction in working capital cycle, (b) better absorption of fixed operating overheads as more and more stores reaches maturity, and (c ) introduction of GST will lead to saving of service tax on lease rentals and other expenses (total expected savings of 0.9-1.0% of sales)."

"We expect SSL to open 12 and 10 SS stores in FY12E and FY13E respectively. Overall, we expect net sales, EBITDA and PAT to grow at CAGR of 22.1%, 22.4% and 20.6% during FY11-FY13E period respectively. We expect, SS to generate FCF of Rs  3960.0 mn during FY13-FY15E period and expect the company to be debt free in FY15E on a standalone basis. We have valued the company based on SOTP valuation. Based on DCF valuation methodology, our 1-yr fwd fair value for standalone SS comes to Rs  296/share. The other businesses of SSL- Hypercity, Crossword, Timezone, etc. has been valued at Rs  48.2/share. Our fair value for SSL comes to Rs  344/share. We initiate coverage with a NEUTRAL rating on the stock," says Aditya Birla Money research report.

Public holding more than 90% in Indian cos

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