Aditya Birla Money neutral on Shoppers Stop

Aditya Birla Money has maintained a neutral rating on Shoppers Stop (SSL) with target price of Rs 418 in its February 5, 2013 research report.

“SSL’s, standalone net sales increased by 20.5% YoY to Rs6526.6 mn in 3QFY13, led by SSS growth of 12.5%. The SSS growth was mainly price driven with increase in ASP by 9%, with volume growth of 3.5%. With improvement in consumer sentiments, SSS growth has shown healthy comeback with dismal growth witnessed in 1QFY13 – 1% and 2QFY13 – 5%. Going forward, management expect SSS growth to be in the range of 8- 9% in FY14E and FY15E, led by healthy traction from newly opened stores in FY12 (13 stores) and FY13E (8 stores). In 3QFY13, the company opened 1 new Shoppers Stop store at Bangalore, taking cumulative store count to 55.”

“EBITDA increased by 9.6% YoY to Rs452.6 mn and margin contracted by 70 bps YoY to 6.9%. However, on sequential basis, operating profit margin is showing healthy trend of recovery, which was at 2.9% in 1QFY13 and 4.6% in 2QFY13. Electricity and Employee cost continue to put pressure on the company’s profitability, with increase of 40% and 30.5% YoY to Rs 174 mn and Rs 432.5 mn respectively. • Capitalisation of new stores led to increase in depreciation expense by 28.1% YoY to Rs120.1 mn. Interest cost increased by 13.8% YoY to Rs85.9 mn. Tax rate was higher at 38.7% led by provision made in advance by the company for any future disputed tax liability. Overall, in 3QFY13, Adj PAT declined by 11.4% YoY to Rs171.0 mn respectively.”

“We are changing our valuation methodology for SSL standalone to P/E from earlier DCF because we believe, post aggressive capex phase in last 2 yrs, business is ready to reap benefits with likely healthy growth in profitability over FY13E-FY15E period. We are valuing the “Shoppers Stop” business at 21.6x FY15E P/E ratio (30% discount to 4 yr mean of 2-yr fwd P/E = 30.8x). We have valued 51% stake in Hypercity on FY15E EV/sales multiple of 1.0x and all equity investments as on FY12 balance sheet on book value. Our Mar14 revised price target comes to Rs 418/share and we revise our rating from “sell” to “neutral,” says  Aditya Birla Money research report.

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