See EBITDA margins growing to 8% in 2 yrs: Shoppers Stop MD

Retail chain Shoppers Stop’s operating margin will continue to expand and move closer to 8 percent over the next couple of years, the company’s Managing Director Govind Shrikhande said.

In an interview to CNBC-TV18’s Sonia Shenoy and Reema Tendulkar, Shrikhande said the trend of heavy discounts will continue for the next 2-3 quarters. He expects a 7-8 percent (same store) growth in the department store category this year.

Below is the transcript of Govind Shrikhande’s interview to CNBC-TV18’s Sonia Shenoy and Reema TendulkarSonia: On the margins compared to a 3.5 percent figure in FY14 it has been quite a turnaround to 6.5 percent this time around and that is what surprised the street. Can you throw some colour on what has led to such a strong operational performance?A: At the beginning of the year we had actually said that 2016-17 we should see the EBITDA margin coming back to 8 percent plus 24 months down the line and we had said that the margins which were running around 5 percent EBITDA before this financial year start should near to about 6 percent plus and 7.5 percent plus by the end of next year to gradually move to the 8 percent. So we are seeing that traction. Fundamentally the traction is happening because like to like store, the older bunch of stores already throw in double digit EBITDA numbers but the newer stores take time. When you get double digit like to like growth that starts ramping up faster and that is why you are seeing a better EBITDA growth. We believe yes the trend towards upward movement of EBITDA will continue. Sonia: Hypercity is a three way positive news this time, like-to-like growth is strong, margins are up and you have achieved a breakeven at the EBITDA level as well. What led to this?A: What we had said even for the last four quarters was that end of 2014-15 we should be company EBITDA positive and end of 2015-16 we should be PAT positive, we are still on the same track. Just to summarise the actions we have taken, the actions have happened over six-eight quarters, one is rightsizing the stores, getting the right merchandise assortment and controlling the cost. So all the three factors if you look at the last three quarters we have seen panning them out but this is the quarter where we are seeing the traction completely turnaround and you should definitely see that we want to beat this number in the coming quarters as well. So lot of hard work that has gone in just like a film which requires two years to really come out to the screen. This is the ultimate result of a lot of hard work by the team members in Hypercity and that is why this kind of result we are seeing. Reema: In the backdrop of improving consumer sentiment, a pickup in demand environment should the analyst community now start building in a gradual reduction in the overall discounting days for the year?A: So we would ideally like to have lesser discounting to happen and the whole retail fraternity does want it to happen that way. But what we are also seeing parallel is the whole online attack with large amount of discounting, large amount of advertising and with a model which doesn’t want to make any money. We believe that at least another two-three quarters you will continue to see large amount of discounting and then it will settle down just like it has settled down across the world whether it is US or whether it is in European market where online on-slot has been constant but it has not worked towards discounting, it has worked more towards convenience and assortment for the customer. We believe similar kind of thing will happen in India but it is still time may be three-four quarters yet to go. Sonia: What is the company’s strategy for omni-channel and also any internal targets on how much contribution you are aiming from this channel?A: We believe that over the next three years time the kind of investment and infrastructure that we are trying to build in, omni-channel should contribute anywhere between 5-8 percent of our total sales and it will rise gradually but then it will take up speed over a 12-18 month period. CEO Call from Rahul Arora, PatnaQ: What is the guidance for the next financial year?A: Overall direction that we see like to like growth between 7-8 percent for the balance part of the year which is second half in the department store category and in hyper city clearly focused on EBITDA positive at a company level for the whole year. So these are the two big objectives which are driving the business and definitely PAT positive in the next financial year as far as Hypercity is concerned. So these are the broad objectives for the next 18 months and that is what we will be working on.