Hold Shoppers Stop; target of Rs 545: ICICI Direct

ICICI Direct's research report on Shoppers Stop

Revenues for the quarter grew 3.7% YoY to Rs 999.1 crore. Adjusting for changes on account of GST and Ind-As-115, revenue growth would have been 9.9% YoY. Growth was mainly driven by healthy SSSG of 8.9% YoY (highest in the last five quarters) owing to strong festive season and low base of Q3FY18 Gross margin for the quarter rose ~260 bps YoY due to higher share of private label brands (up 150 bps YoY, 10 bps QoQ to 10.4%). However, higher employee cost (up 6.1% YoY), rental expense (up 8.4% YoY) and other expenses (up 7.4% YoY) curtailed the EBITDA margin expansion. Resultant operating margin rose 150 bps YoY to 9.7% (adjusted EBITDA margin up ~100 bps YoY to 9.2%) Efforts to improve the balance sheet have resulted in significant debt reduction (cash surplus of Rs 113 crore as on December 31, 2019). Subsequently, interest cost declined 67% YoY. Resultant PAT came in at Rs 44.3 crore vs. Rs 16.3 crore in Q3FY18 (the company had reported one-time exceptional expense to the tune of Rs 16.7 crore in Q3FY18). Adjusted growth was at ~60% YoY.

Outlook

However, sustainable enhancement in SSSG would be critical for re-rating of the stock. We maintain our HOLD recommendation on the stock with a revised target price of Rs 545 (16.0x FY20E EV/EBITDA).

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