Aditya Birla Money neutral on Shoppers Stop; target Rs 344

Aditya Birla Money has come out with its report on Shoppers Stop with a neutral rating and target of Rs 344 in its report dated November 25, 2011.

"Shoppers Stop (SSL) owns 51% stake in Hypercity. Hypercity is in nascent stage of growth and owns 9 stores as of FY11, with only 3 stores older than 2 yrs. We expect Hypercity to open 20 stores by FY15E and 42 stores by FY20E. Since, Hypercity has not yet break even at EBITDA level and its balance sheet being relatively weak as compared to that of SSL standalone, SSL is currently funding its expansion needs in the form of loans and advances (As of FY11, total loans and advances to subsidiary companies is Rs 1541.7 mn out of which around Rs 1256.6 mn has been given to Hypercity). As of FY11, the total gross debt of standalone SSL stood at Rs 1487.2 mn, indicating substantial chunk of debt is to fund the expansion of subsidiaries companies." "With allowance of 51% FDI in multi-brand retail, Hypercity can bring in strategic partner, there reducing dependence on SSL to fund its expansion plans. Hence, standalone SSL will get benefit in the form of a) release of funds from Hypercity, which can be utilised for its own expansion and b) being a well established player, strategic investor will be given stake at higher valuation thereby increasing the value of SSL

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