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Shoppers Stop Ltd>
  • CMP : 740.3 Chg : -9.90 (-1.32%)
  • Target : 850.0 (30.77%)
  • Target Period : 12-18 Month

24 Jan 2023

Retail footprint expansion to aid revenue growth

About The Stock

Shoppers Stop (SSL) is one of India’s leading departmental stores and has undergone various structural changes with focus on enhancing its share of private label brands and beauty portfolio, accelerating growth through digital channels and providing better shopping experience through ‘personal shoppers’.

  • Operates 96 departmental stores and 177 beauty format stores spread across 4.0+ million sq ft and present in 47 cities
Q3FY23 Results:

SSL reported highest ever Q3 sales with revenues being 14% higher than pre-Covid levels. Store additions have been healthy with opening of five new departmental stores.

  • On a favourable base sales grew 19% YoY (12% QoQ) to ₹ 1131.7 crore
  • With revenues normalising, new store openings, operating overheads also reverted to pre-Covid levels. EBITDA margins declined 50 bps YoY to 18.7%
  • PAT was further boosted by higher other income. Subsequently, net profit grew 24% YoY to ₹ 62.1 crore
What should Investors do?

SSL has delivered one the best returns in the retail sector in the last one year with stock price appreciating more than 75%. However, over the last five years the stock was underperforming the broader indices on account of weak SSSG, muted store addition pace and lower share of private label brands (five-year CAGR: 5%).

  • With the new management team in place, we expect SSL to revive its revenue trajectory and margin profile. Reasonable valuations prompt us to remain positive on the stock and maintain BUY
Target Price and Valuation

We value SSL at ₹ 850 i.e. 13x FY24E EV/EBITDA 

Key Triggers for future price performance
  • We believe the new MD (former Westside CEO) would bring in his expertise in the private label brands domain and focus on enhancing the share of high margin private label brands (~15% of revenues)
  • It has embarked on a healthy store addition plans with opening of 12 departmental stores and 15 beauty stores in FY24E. Majority of the store addition is in Tier II/III cities. Capex for the same is expected to be ₹ 150 crore, which will be funded mainly through internal accruals
  • The management expects steady SSSG growth of 5-10% in the near term
  • Key thrust on accelerating investments in omni-channel with long term target of channel contributing 20% of sales from current ~5%
  • Foray into beauty distribution channel to solidify its overall beauty segment offerings. Expects to clock in ₹ 500 crore sales by FY25E
Alternate Stock Idea:

Apart from SSL, in our retail coverage we also like ABFRL.

  • ABFRL has charted out growth strategies to become a ~US$2.8 billion entity by FY26E, translating into 15% CAGR in FY20-26. BUY with TP of ₹ 380.

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E 2 year CAGR (FY22-24E)
Net Sales 3,481.3 3,381.0 1,725.1 2,493.8 -7.0 4,131.2 4,669.2 36.8
EBITDA 253.3 549.4 53.4 267.5 - 724.9 844.0 77.6
PAT 78.8 -140.9 -275.2 -86.7 - 137.2 181.1 -
EV/Sales (x) 1.6 2.3 5.2 3.6 - 2.2 1.9 -
EV/EBITDA (x) 22.7 14.1 168.7 33.8 - 12.3 10.3 -
RoCE (%) 11.6 4.7 -14.8 -3.9 - 15.3 17.6 -
RoE (%) 8.1 -103.1 -151.5 -88.2 - 58.3 43.5 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

  • On the topline front, Shoppers Stop reported one of its highest ever Q3 sales with healthy growth of 19% YoY to | 1131.7 crore (on a favourable base). The company accelerated its store addition trajectory with opening of five new stores taking the total count to 96 Departmental stores (~3.9 million sq ft). Revenue per store came in at ~ | 12 crore. SSSG was muted at 1% compared to pre-Covid levels (16% YoY). Customer visits (offline + online) was down marginally YoY to 38.6 million but average transaction value was up 10% YoY to | 4616. This is the eleventh consecutive quarter of increase in ATV. The management highlighted that Diwali season was strong in terms of demand and post Diwali demand was muted for next three weeks. It picked up again in December led by traction in sales of winter wear. The steady momentum has continued in January
  • With revenues normalising and new store openings, operating overheads also reverted to pre-Covid levels. Other expenses and employee expenses grew 19% and 30% YoY, respectively, in Q3FY23. Reported EBITDA margins declined 50 bps YoY to 18.7%. Rental expenses grew ~30% YoY to | 109 crore. Opex per store (pre-Ind AS 116) was at | 3.9 crore vs. | 3.8 crore in Q3FY20
  • As on 9MFY23, the company has opened eight departmental store taking the count to 96 (3.9 million sq ft). The company is on track to open another five stores in Q4FY23 and is expected to exit FY23 with 100+ stores. This is its highest ever store openings in a financial year over the last decade. The capex for the same is estimated at | 148 crore. Currently the average store size is ~ 40000-50000 square feet and the new stores that would be opened in Tier II cities would have an average size of 25000-30000 square feet
  • The company has forayed into the beauty distribution business and formed a subsidiary Global SS Beauty for the same. The company has entered into tie ups with 12 global luxury and bridge to luxury beauty brands. The company is planning to launch products from L’Oréal soon and will be continuously adding more brands to its portfolio. The company is aiming to scale up the business to | 500 crore revenues by FY25. The management indicated that gross margin in the beauty distribution business was between 32% and 35%
  • On the size of revenue of its private label brands the management highlighted that out of nine brands, two brands are more than | 100 crore+ and three more brands could cross more than | 100 crore in the next 12-18 months. The share of private labels was at 14% of total revenues and 20% of apparel revenues. Kashish & Bandeya were top two occasion wear brands during Pujo, Diwali and contributed ~50% of total ethnic business



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