Shoppers Stop Q3: Re-rating dependent on store additions and product mix

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26 Aug, 2025 12:21

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Krishna Karwa
Moneycontrol Research

Highlights:
- Post-correction, the stock offers value
- Revenue growth will be driven by network expansion
- Product mix would influence profitability
- FDI regulations may lead to restrictions on sales

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Shoppers Stop, one of India's largest departmental store chains, reported a strong set of numbers in Q3. Going forward, the company is banking on network expansion and impetus towards high-margin products to bolster its performance.

After a sharp 26.6 percent dip from its 52-week high, the stock, despite being an expensive proposition, has the potential to re-rate.

Shoppers Stop is a part of the K Raheja Group. It operates 295 departmental stores, spanning 4.4 million square feet, in 38 cities across India. Its ‘First Citizen Loyalty Programme’ covers nearly 5.9 million members.

Q3 analysis

Positives
- 8.9 percent like-to-like growth in sales YoY (year-on-year) because of wedding and festive demand. This is the highest in the last 5 quarters
- Top-line traction seen across all segments
- Noticeable improvement in margins because private label sales grew by 29 percent YoY
- Financing costs declined substantially
- Improvement in key parameters

Negatives
- Sales growth appears optically lower (3.7 percent YoY) due to accounting and GST adjustments

Observations

Revenue drivers
- Shoppers Stop outlets (4) and  beauty stores (4) are likely to be added in Q4 FY19
- Number of members under the customer loyalty programme are steadily growing
- Personal shopper services will be made available in more stores in due course
- Click-and-collect services (currently offered in 50 Shoppers Stop stores) will gain scale
- Omnichannel sales (through shoppersstop.com, amazon.in) should gain momentum as convenience shopping picks up pace
- Kiosks/experience centres will be set up in stores other than Mumbai and Bengaluru
- Women's ethnic wear is a fast-growing segment

Margin drivers
- The contribution of private labels to sales is expected to increase gradually
- Branded beauty products, which fetch better margins than apparel, are meaningfully contributing to the top-line since the past few quarters
- The share of non-apparel products to sales is slated to increase. This will help diversify challenges associated with seasonality in apparel (H2 of a fiscal year tends to be better than H1)
- Long-term debt has been pared from the proceeds of stake sale to Amazon and sale of Hypercity to Future Retail in FY18
- To rationalise rentals, most of the new stores (to be opened in tier 2/3 regions) will be small or mid-sized

Outlook- The recently announced FDI regulations may restrict Amazon or Shoppers Stop’s scope for discounting, warehousing and marketing of products (particularly the private label ones). One needs to keep a close eye on how developments on this front unfold
- The stock is trading at 26.8 times its FY21 projected earnings
- Price/time correction during the course of the past year/last 3 months, respectively, provides a good buying opportunity

Follow @krishnakarwa152

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(Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here)