Shoppers Stop - robust performance; Buy:Edelweiss

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􀂃 Buoyant sales growth in departmental store format
Shoppers Stop’s (SSL) consolidated revenues increased 56.8% Y-o-Y, to INR 6.3
bn. Rise in consumer confidence, coupled with higher volumes, conversion ratio
and transaction size boosted Shopper’s Stop (standalone) like-to-like (LTL) sales
to 13%. Consolidated PAT increased 11% Y-o-Y to INR 96 mn.


􀂃 EBIDTA margins dip following Hypercity stake increase
Q2FY11 consolidated EBITDA grew 12.8% Y-o-Y, to INR 224 mn. EBITDA margin
came at 3.6% (-139bps Y-o-Y), driven by 359bps and 47bps surge in COGS and
employee cost, respectively, Y-o-Y. This was, however, marginally offset by
decline in SG&A by 267bps.

􀂃 Hypercity: Potential growth driver; Q2FY11 sales growth of 94% Y-o-Y
Hypercity revenues surged 94% Y-o-Y, to 1.38 bn, backed by LTL sales growth
of 25%. In Q2FY11, Hypercity opened its eighth store in Bhopal and was
successful in delivering store level EBIDTA profit for the quarter. Going forward,
it plans to open 4-5 stores every year. In the current quarter, Hypercity added
~17,000 Discovery Club members, taking their total count to 115,000.

􀂃 Expansion to be another growth driver; QIP successfully concluded
SSL will add ~1 mn sq ft in the next 30 months with 18 new stores. This will be
done through entry into new cities (Ahmedabad, Vijaywada, Siliguri, Durgapur
etc) and deeper penetration of stores in the existing cities. The company added
two new Shoppers Stop departmental stores and one new store each of MAC
store and Crossword store in Q2FY11. Also, during the quarter, ~100,000
members were added to the First Citizen’s club, taking their total count to 1.8
mn members. First Citizen members’ contribution reached 73% of the revenues
this quarter. The company successfully launched QIP and raised INR 2.22 bn.

􀂃 Outlook and valuations: Positive; maintain ‘BUY’
We expect SSL to benefit from Hypercity stake increase, store expansion, cost
control measures and uptick in spending by urban consumers. Sales growth is
likely to remain buoyant in the coming quarter with Q3FY11 likely to be
positively impacted by a delayed Diwali this year. Hypercity is likely to be a key
growth driver, as the hypermart format is doing quite well in India. We maintain
‘BUY/ Sector Performer’ on the stock.