Ashika Research - Equities
29 September 2012
Shoppers Stop Ltd.
Recommendation
Shoppers Stop Ltd. (SSL) is one of the largest chains of department stores at
present in India. At present SSL has a retail network of 4.64 mn square feet and
160 stores in different formats. Presently, SSL has 12 Hypercity Stores, 54
Shoppers Stop stores, 12 Home Shop(Home Décor), 40 Mother Care, 82
Crossword, 22 M.A.C(cosmetics), 12 Clinique, 5 Estee Lauder, 17 Timezone
entertainment and 1 duty free shop in International airport. It has a customer
base of 2.6mn customers through its customer loyalty program “First Citizen”
which account for 70% of SSL’s sales (FY12).
Investment Rationale
FDI in retail- a big positive for the retail sector
Ashika Stock Broking Limited
Recently Govt. of India has approved FDI up to 51% in multi-brand retail (earlier
foreign investors can hold upto 24% stake but they were not allowed to invest
directly), subject to State Goat’s approval. Nine states and three union
territories have already shown support to FDI. SSL have ~62% stores in these
states. In the month of January 2012, govt. of India allowed 100% FDI in single
brand retail (from 51% earlier). With these two positive update, Shoppers Stop
is open to strategic tie -ups with foreign retailers especially in the food and
grocery segment, under the Hypercity Brand. The company will be looking at
various options available for strategic partnerships in terms of sourcing and
logistics strength. Even in the departmental store format, the tie up would be in
the food and grocery format. We believe that this reform would be a key
positive for the company for its hypermarket format and will help the company
to succeed its expansion programme faster.
Target price
Closing price
Potential upside
Buy
Rs. 465
Rs. 393
22%
Company Information
BSE Code
532638
NSE Code
SHOPERSTOP
Bloomberg Code
SHOP IN
ISIN
INE498B01024
Market Capital
Rs 3252 Cr.
O/shares (nos.)
8.26 Cr.
52-wk High/Low
Rs. 427/Rs. 251
1year Avg. volume (NSE)
1,11,841
Face value
Rs. 5
Book value
Rs. 79.5
Relative performance chart (one year)
Expansion plans on track
During June’12 quarter, the company opened 2 Shoppers Stop, 1 Mothercare, 3
MAC, 1 Clinique & 4 Crossword stores. Customer footfall too has increased by
10 per cent in the June’12 quarter.
HyperCITY
Crossword is the leader in the lifestyle bookstore category with a unique
product mix of books, magazines, CDROMs, music, stationery and toys. This is
further enhanced with services like ‘Diala- Book’, and facilities like Gift
Vouchers and ‘Return, Exchange, & Refunds’ policy. Currently, there are 82
Crossword stores / doors in operation. It has forayed into the entertainment
sector with a stake of 47% in Timezone Entertainment Private Ltd, which is in
the business of operating Family Entertainment Centers (FECs). It currently has
17 doors in leading metros.
Hyper CITY is the value retailing format of the company. Shoppers Stop holds
51% stake in the business, balance being held by the Raheja group. The
company plans to reach 18 stores by 2014 from 12 stores operating presently.
Hypercity has already achieved operating (EBITDA) breakeven during 3QFY12
and is targeting to achieve PAT breakeven in FY14E. Key drivers for enhancing
profitability for this format will be scale benefits, healthy SSS growth rates and
improved product mix. Food which currently contributes 50- 55% of sales mix is
likely to come down to ~45% levels and share of apparel (more profitable) is
likely to move up from 7-8% currently to ~12- 14% over medium term.
In Rs. Cr.
NetSales
FY12
FY13E
FY14E
3060
3629
4588
28
18.6
26.4
EBITDA
111
167
294
EBITDA Margin
3.62
4.6
6.4
Growth(%)
Net profit
-24
78
149
Net profit Margin (%)
-0.8
2.16
3.24
9.5
18
EPS (Rs)
Share Holding – as on 30 June 2012
Trinity, 226/1,A.J.C. Bose Rd., 7th Floor,Kolkata:700 020, Ph- 033-4010 2500, Extn. -129 www.ashikagroup.com
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Ashika Research - Equities
Ashika Stock Broking Limited
Indian Retail – huge opportunity
Indian retail industry is approximately ~$500 Bn industry. Out of this total retail pie,
organized retail sector has market share of 5-6 percent only. This retail sector may
increase to $675 Bn in 2016 and organized retail may increase to $84 Bn (12.4%
market share).
Trinity, 226/1,A.J.C. Bose Rd., 7th Floor,Kolkata:700 020, Ph- 033-4010 2500, Extn. -129 www.ashikagroup.com
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Ashika Research - Equities
ConcernDeterioration in the economic scenario can impact the revenues of the company
adversely. Sales per Sq.ft on chargeable area has decreased in the June’12 quarter.
Outlook & Valuation: Going forward we believe that the company’s
expansion in the retail space, coupled with the rise in discretionary spending,
will drive its company’s overall sales. The company’s aggressive expansion in
current economic scenario will start paying off as the Hypercity turns into a
full fledged profit center & new departmental stores also starts contributing to
optimum level. Also, FDI in retail will act as a big trigger, there by attracting
global equity capital for expansion & investing the same in their supply chain.
This will provide greater access to systems & processes established by global
retailers and thereby reducing cost for the end consumers. At the CMP of Rs.
393, the scrip is trading at a P/E of 41x & 22x based on the expected earnings
of Rs. 9.50 & Rs. 18.0 in FY13E & FY14E respectively. We recommend a ‘BUY’
for long term investment point of view.
Ashika Stock Broking Limited
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Trinity, 226/1,A.J.C. Bose Rd., 7th Floor,Kolkata:700 020, Ph- 033-4010 2500, Extn. -129 www.ashikagroup.com
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