Aditya Birla Money neutral on Shoppers Stop

Aditya Birla Money's report on Shoppers Stop (SSL)

For 1QFY14, standalone net sales for SSL increased by 19.0 percent YoY to Rs 5743.6 mn, led by healthy SSS growth of 12 percent. The SSS growth was mainly price driven with increase in ASP by 8.7 percent and volume growth of 3.3 percent. During 1QFY14, the company has opened 5 new Shoppers Stop stores and aim to open further 3 stores in 2QFY14E. The management has indicated likelihood of incremental 2 stores addition in 2HFY14, thereby revising FY14E total new store opening target to 10 (earlier target was 8 stores). In our assumtions, we have revised our new store opening target to 9 each in FY14E and FY15E, as compared to our earlier assumption of 8 stores each in FY14E and FY15E. 

Gross margin (excl other operating income) expanded by 60 bps YoY to 36.6 percent, led by increase in share of apparels (higher margins as compared to non-apparels) from  57.7 percent in 1QFY13 to 59.5 percent in 1QFY14. Management expect gross margin to expand by 50 bps in FY14E.

For 1QFY14, EBITDA increased by 69.4 percent YoY to Rs 233.5 mn and margin expanded by 121 bps YoY to 4.1 percent. Management is running various cost optimisation measures and taking care that operating expenses grow at slower rate as compared to the SSS growth, so as to boost profitability.

Depreciation and Interest cost increased by 10.7 percent and 27.6 percent YoY to Rs 132.8 mn and Rs 98.3 mn respectively. Exceptional items include Rs 2.9 mn write-off on account of insurance policy exclusion for Inorbit Pune store and Rs  3.8 mn write-off towards part inadmissability of Pune Koregaon park fire claim. Overall, in 1QFY14, Adj PAT increased by 107.7 percent YoY to Rs 20.4 mn.

Hypercity: For 1QFY14, Hypercity posted net sales of Rs 2112.7 mn (up 11.8 percent YoY), EBITDA loss of Rs 93.2 mn and PAT loss of Rs 247.3 mn (as compared to loss of Rs 213.5 mn in 1QFY13). The SSS growth (excluding CDIT category) was 14 percent aide by volume growth of 4 percent and increase in ASP of 10 percent. The company has posted 8th consecutive quarter of store level EBITDA breakeven with store EBITDA of Rs 27.6 mn. Ludhiana store was shut down during this qtr and depreciation includes Rs  330 mn of asset impairment for the same.

Management has indicated there exists right sizing opportunity in 2-3 stores, viz, Vashi, Hyderabad and Thane. For Hypercity, the company aims to boost margins in next 2-3 yrs by holding up operating expenses inline with inflation, opening smaller new stores, downsizing the stores (wherever the opportunity exists) and targetting to increase share of high margin Fashion and Home business to 15 percent and 13 percent from current 11.3 percent and 11.0 percent respectively, in next 2-3 years.   

Outlook: Although consumer sentiment is weak, it is having relatively less impact on  low value ticket size like apparels. We believe, going forward, consumer sentiment is likely to improve, led by govt effort to drive the growth of Indian economy. Going forward, we expect SSS to be in the range of 7-8 percent. In addition, full ramp-up of stores opened during FY12-FY13 period will aid in healthy topline growth coupled with margin expansion during FY14E-FY16E period.

Valuation: "We believe SSL is the quality play on organised retail story of India and post aggressive capex phase in last 2 yrs, business is ready to reap benefits with likely healthy growth in profitability over FY13-FY15E period. We are valuing the "Shoppers Stop" business at EV/EBITDA ratio of 18.7x FY14E EBITDA (5 yr mean of 1-yr fwd EV/EBITDA = 18.7x). We have valued 51 percent stake in Hypercity on FY14E EV/sales multiple of 1.0x and all equity investments as on FY13 balance sheet on book value. Our Aug14 revised fair value per share comes to Rs 452.6/share and we change our rating to BUY from NEUTRAL earlier," says Aditya Birla Money research report.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More