ICICI Direct recommended hold rating on Shoppers Stop with a target price of Rs 205 in its research report dated October 22, 2020.
ICICI Direct's research report on Shoppers Stop
Marred by store closures (revenue de-growth: Q1: 94%, Q2: 64%), high operating fixed costs, losses for SSL bloated to Rs 200 crore in H1FY21 vs. Rs loss of Rs 38.0 crore in H1FY20. Hence, negative FCF of Rs 256 crore translated to gross debt rising 30% to Rs 283.7 crore. To strengthen the b/s, the company has proposed right issues worth Rs 300 crore. Also, SSL is aiming to cut costs by ~ Rs 450 crore in FY21E (achieved ~ Rs 315 crore cost savings in H1FY21). Though revenue recovery is visible MoM, sales continues to be below pre-Covid levels. Non-metro cities are recovering faster (down 59% YoY) vs. stores in Metro cities (down 71% YoY). Similarly, standalone stores have seen better traction (down 57% YoY) vs. mall stores (down 67% YoY). E-commerce continues to gain traction with current share at 8% (up 600 bps YoY). The management expects recovery rate to pick up pace in the festive season. Re-opening of food outlets, movie theatres in certain states would also perk-up footfalls for its mall stores. The management highlighted that certain stores in the eastern region saw revenue recovery rate of ~75% owing to festive season. We expect FY21E to be a washout year with revenue de-growth of ~47% YoY. Among positives, Venugopal Nair (CEO - Westside at Trent since January 2020) has been appointed MD & CEO for three years with effect from November 6, 2020.
We await the new MD’s strategic growth roadmap and would monitor the improvement in key parameters like SSSG and private label share. Over last one year, the stock has seen significant correction. Hence, we upgrade the stock from REDUCE to HOLD with a target price of Rs 205 (6.5x EV/EBITDA).
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