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SHOPPERS STOP
Robust performance continues
Buoyant sales growth in departmental store format
Shoppers Stop’s (SSL) consolidated revenues increased 66.0% Y-o-Y, to INR
6.77 bn (against our estimate of INR 6.10 bn). Rise in consumer confidence,
coupled with higher volumes (LTL volumes up 15%), customer entry and
transaction size, boosted core department store format like-to-like (LTL) sales to
22%. LTL for stores more than five years is 14%, while for those less than five
years it is 39%. Consolidated PAT increased 21.5% Y-o-Y, to INR 165 mn.
EBIDTA margins dip following increased stake in Hypercity
Q3FY11 consolidated EBITDA was flat Y-o-Y, at INR 324 mn. EBITDA margin
came at 4.8% (-318bps Y-o-Y), driven by 573bps and 62bps surge in COGS and
employee cost, respectively, Y-o-Y. This was, however, marginally offset by
decline in SG&A by 316bps.
Hypercity: Potential growth driver
Hypercity revenues surged to INR 1.52 bn, backed by LTL sales growth of 22%.
Hypercity opened one more store in Q3FY11 and, going forward, plans to open
3-4 stores every year. In the current quarter, Hypercity added ~23,000
Discovery Club members, taking their total count to 138,000. Although there
was a loss of INR 90.2 mn at Hypercity’s EBITDA level in Q3FY11, we expect
Hypercity to turn EBITDA positive in FY12.
Increasing presence through store expansion
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
one new Shoppers Stop departmental stores and MAC store and four new
Crossword store in Q3FY11. Also, during the quarter, ~100,000 members were
added to the First Citizen’s club, taking the total count to 1.9 mn. First Citizen
members’ contribution reached 73% of the revenues this quarter.
Outlook and valuations: Positive; maintain ‘BUY’
We expect SSL to benefit from increased stake in Hypercity, store expansion,
cost control measures and uptick in spending by urban consumers. Sales growth
is likely to remain buoyant in the coming quarters with robust same store sales
growth and expansion plans. Hypercity is likely to be a key growth driver, as the
hypermart format is doing quite well in India. We maintain ‘BUY/Sector Out
Performer’ on the stock.
Key takeaways from concall
• Dream quarter on all fronts: Q3FY11 had positive impact of delayed onset of
Diwali. In terms of same store growth, the company saw 22% growth Y-o-Y: 15%
due to volumes and 7% due to price. SSL remains bullish on the India consumption
story and has observed an increase in spending in higher and mid tier consumer
base. Recovery has been evident across segments, with women consumers spending
heavily in segments like beauty products, western wear, leather etc.
• Sustainable same store growth: SSL has benefitted due to a low base and
increase in discretionary spending in FY11. It will now enter quarters with a relatively
higher base. Hence for FY12, it expects sustainable same store growth of 6-9%.
Sales growth is likely to remain buoyant in coming quarters.
• East India growing much faster than others: East is growing at 45% same store
growth, while overall markets are growing at 22%. SSL will add new stores in East
India. The company plans to add stores in seven smaller cities across India to
capture boom in smaller cities and go deeper in terms of footprint.
• Shoppers Stop format: SSL currently has 36 stores and will add 3-4 stores in
Q4FY11. Post that, it is looking to add 8-9 stores every year in FY12 and FY13.
• Hypercity: Currently, there are eight Hypercity stores, and 3-4 more stores are
likely to open annually. The company will rollout one store in Ludhiana by March 2011
and one in Bangalore by April 2011. The company further plans to open two more
stores in H1FY12, thereby taking its store tally to 12 by end of H1FY12.
In Hypercity, stores older than three years have EBITDA margin of 6-7%, while those
18-36 months old have margins of 4-6%; for stores between 12 and 24 months,
margins are 2.5-4%. In this format, SSL is likely to focus more on quality rather than
price; it has taken some initiatives for making its positioning in price stronger. Bestin-
class hyper formats globally get 22-23% gross margins and have a contribution of
~70% from foods.
• Home segment: Doing as well as others formats and is quite profitable. The
company will add 10 more stores in the next 12-15 months.
• Impact of inflation: Till now in FMCG, not much price hike has happened. However,
SSL is seeing higher offtake of smaller SKUs. High inflation has been seen in
vegetables and fruits.
• Arcelia: SSL has completely exited from this format and feels India is not yet ready
for this. It will relook at this format after 2-3 years.
• VAT: This has a negative impact of 40bps on margins.
• FY12 guidance: The company expects INR 30 bn overall sales by FY12.
• Garment price increase: Garment players will need to take a price hike of 10-15%
in FY12 due to sharp increase in cotton prices. This could have some impact on
volumes in garment segment.
• Revamped and new stores doing well: SSL has tasted success in renovated
stores in Pune, Chennai and Mumbai. The cost of renovation is 60% of a new store
i.e. ~INR 800-1000/ sq ft. Life cycle of stores, globally, is close to seven years; in
India too, stores older than five years start seeing an impact of less consumer
interest. Thus, store renovation is important for sustained business development.
• Looking to drive synergy between customer loyalty schemes in medium
term: SSL currently has three separate loyalty schemes for Shoppers Stop, Hypercity
and Crossword. It is looking to derive synergy from all three over the medium term.
• Crossword: Continues to do well and is profitable at the PAT level. However, due to
increase in competition in this segment, margins have come under pressure.
There has been no significant change in operations of the company (Crossword) post
the recent termination of master franchisee agreement. The company is looking at a
change in business mix, more franchises, new geographies (open to even outside
India), and will announce it in the next few quarters.
• Private labels: The company has sales contribution from private labels in both
Shoppers Stop and Hypercity. Private labels contribute ~15.9% in Shoppers Stop and
~22% in HyperCity in terms of segment sales. Margins from private labels are higher
than branded ones.
Company Description
SSL, part of the K Raheja Group of Companies, is a focused luxury segment department
store player. It has presence in high opportunity segments like home improvement
through Home Stop; infant and mothers to be care through Mothercare (a franchise with
Mothercare PLC); cosmetics and beauty care through M.A.C. and Clinique (a retail
agreement with Estee Lauder); the books and music space through Crossword; and in
airport retailing through a JV with Nuance from Switzerland. It also acquired majority
stake in Hypercity, a hypermarket venture promoted by a group company which focuses
on mass segment of retailing. Shopper’s Stop Ltd along with its associate companies
Hypercity Retail (India) Ltd and Timezone Entertainment Pvt. Ltd operates more than 3
mn sq ft in the country.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and
economic factors. The big opportunity lies in the growing share of organised retail with
the growing trend among consumers to allocate a larger share of income to consumption
and gradual improvement in lifestyle. The improving liquidity is also positive as it means
better delivery of retail space for expansion. SSL is a niche play with strong brand
position in the lifestyle space. It has assiduously positioned itself as a retailer since 1991
of superior quality products and services, offering an international shopping experience.
This strong positioning and brand recall gives the company a strategic advantage in the
light of increasing competition. With its steadfast focus on systems and processes and its
ability to attract global brands as venture partners, it is well placed to emerge as a
leading departmental store player in the long run.
Key Risks
Store rollout delays
A large number of retailers are facing delays in roll outs due to delays by developers.
This is a significant risk and can lead to cost overruns. Additionally, delays can also lead
to capital crunch with a large number of stores bunching up.
Increased competition
Pressure on margins due to cost escalation and competition
Escalation in lease rentals
Escalation in lease rentals and administration expenses can impact margins.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
SHOPPERS STOP
Robust performance continues
Buoyant sales growth in departmental store format
Shoppers Stop’s (SSL) consolidated revenues increased 66.0% Y-o-Y, to INR
6.77 bn (against our estimate of INR 6.10 bn). Rise in consumer confidence,
coupled with higher volumes (LTL volumes up 15%), customer entry and
transaction size, boosted core department store format like-to-like (LTL) sales to
22%. LTL for stores more than five years is 14%, while for those less than five
years it is 39%. Consolidated PAT increased 21.5% Y-o-Y, to INR 165 mn.
EBIDTA margins dip following increased stake in Hypercity
Q3FY11 consolidated EBITDA was flat Y-o-Y, at INR 324 mn. EBITDA margin
came at 4.8% (-318bps Y-o-Y), driven by 573bps and 62bps surge in COGS and
employee cost, respectively, Y-o-Y. This was, however, marginally offset by
decline in SG&A by 316bps.
Hypercity: Potential growth driver
Hypercity revenues surged to INR 1.52 bn, backed by LTL sales growth of 22%.
Hypercity opened one more store in Q3FY11 and, going forward, plans to open
3-4 stores every year. In the current quarter, Hypercity added ~23,000
Discovery Club members, taking their total count to 138,000. Although there
was a loss of INR 90.2 mn at Hypercity’s EBITDA level in Q3FY11, we expect
Hypercity to turn EBITDA positive in FY12.
Increasing presence through store expansion
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
one new Shoppers Stop departmental stores and MAC store and four new
Crossword store in Q3FY11. Also, during the quarter, ~100,000 members were
added to the First Citizen’s club, taking the total count to 1.9 mn. First Citizen
members’ contribution reached 73% of the revenues this quarter.
Outlook and valuations: Positive; maintain ‘BUY’
We expect SSL to benefit from increased stake in Hypercity, store expansion,
cost control measures and uptick in spending by urban consumers. Sales growth
is likely to remain buoyant in the coming quarters with robust same store sales
growth and expansion plans. Hypercity is likely to be a key growth driver, as the
hypermart format is doing quite well in India. We maintain ‘BUY/Sector Out
Performer’ on the stock.
Key takeaways from concall
• Dream quarter on all fronts: Q3FY11 had positive impact of delayed onset of
Diwali. In terms of same store growth, the company saw 22% growth Y-o-Y: 15%
due to volumes and 7% due to price. SSL remains bullish on the India consumption
story and has observed an increase in spending in higher and mid tier consumer
base. Recovery has been evident across segments, with women consumers spending
heavily in segments like beauty products, western wear, leather etc.
• Sustainable same store growth: SSL has benefitted due to a low base and
increase in discretionary spending in FY11. It will now enter quarters with a relatively
higher base. Hence for FY12, it expects sustainable same store growth of 6-9%.
Sales growth is likely to remain buoyant in coming quarters.
• East India growing much faster than others: East is growing at 45% same store
growth, while overall markets are growing at 22%. SSL will add new stores in East
India. The company plans to add stores in seven smaller cities across India to
capture boom in smaller cities and go deeper in terms of footprint.
• Shoppers Stop format: SSL currently has 36 stores and will add 3-4 stores in
Q4FY11. Post that, it is looking to add 8-9 stores every year in FY12 and FY13.
• Hypercity: Currently, there are eight Hypercity stores, and 3-4 more stores are
likely to open annually. The company will rollout one store in Ludhiana by March 2011
and one in Bangalore by April 2011. The company further plans to open two more
stores in H1FY12, thereby taking its store tally to 12 by end of H1FY12.
In Hypercity, stores older than three years have EBITDA margin of 6-7%, while those
18-36 months old have margins of 4-6%; for stores between 12 and 24 months,
margins are 2.5-4%. In this format, SSL is likely to focus more on quality rather than
price; it has taken some initiatives for making its positioning in price stronger. Bestin-
class hyper formats globally get 22-23% gross margins and have a contribution of
~70% from foods.
• Home segment: Doing as well as others formats and is quite profitable. The
company will add 10 more stores in the next 12-15 months.
• Impact of inflation: Till now in FMCG, not much price hike has happened. However,
SSL is seeing higher offtake of smaller SKUs. High inflation has been seen in
vegetables and fruits.
• Arcelia: SSL has completely exited from this format and feels India is not yet ready
for this. It will relook at this format after 2-3 years.
• VAT: This has a negative impact of 40bps on margins.
• FY12 guidance: The company expects INR 30 bn overall sales by FY12.
• Garment price increase: Garment players will need to take a price hike of 10-15%
in FY12 due to sharp increase in cotton prices. This could have some impact on
volumes in garment segment.
• Revamped and new stores doing well: SSL has tasted success in renovated
stores in Pune, Chennai and Mumbai. The cost of renovation is 60% of a new store
i.e. ~INR 800-1000/ sq ft. Life cycle of stores, globally, is close to seven years; in
India too, stores older than five years start seeing an impact of less consumer
interest. Thus, store renovation is important for sustained business development.
• Looking to drive synergy between customer loyalty schemes in medium
term: SSL currently has three separate loyalty schemes for Shoppers Stop, Hypercity
and Crossword. It is looking to derive synergy from all three over the medium term.
• Crossword: Continues to do well and is profitable at the PAT level. However, due to
increase in competition in this segment, margins have come under pressure.
There has been no significant change in operations of the company (Crossword) post
the recent termination of master franchisee agreement. The company is looking at a
change in business mix, more franchises, new geographies (open to even outside
India), and will announce it in the next few quarters.
• Private labels: The company has sales contribution from private labels in both
Shoppers Stop and Hypercity. Private labels contribute ~15.9% in Shoppers Stop and
~22% in HyperCity in terms of segment sales. Margins from private labels are higher
than branded ones.
Company Description
SSL, part of the K Raheja Group of Companies, is a focused luxury segment department
store player. It has presence in high opportunity segments like home improvement
through Home Stop; infant and mothers to be care through Mothercare (a franchise with
Mothercare PLC); cosmetics and beauty care through M.A.C. and Clinique (a retail
agreement with Estee Lauder); the books and music space through Crossword; and in
airport retailing through a JV with Nuance from Switzerland. It also acquired majority
stake in Hypercity, a hypermarket venture promoted by a group company which focuses
on mass segment of retailing. Shopper’s Stop Ltd along with its associate companies
Hypercity Retail (India) Ltd and Timezone Entertainment Pvt. Ltd operates more than 3
mn sq ft in the country.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and
economic factors. The big opportunity lies in the growing share of organised retail with
the growing trend among consumers to allocate a larger share of income to consumption
and gradual improvement in lifestyle. The improving liquidity is also positive as it means
better delivery of retail space for expansion. SSL is a niche play with strong brand
position in the lifestyle space. It has assiduously positioned itself as a retailer since 1991
of superior quality products and services, offering an international shopping experience.
This strong positioning and brand recall gives the company a strategic advantage in the
light of increasing competition. With its steadfast focus on systems and processes and its
ability to attract global brands as venture partners, it is well placed to emerge as a
leading departmental store player in the long run.
Key Risks
Store rollout delays
A large number of retailers are facing delays in roll outs due to delays by developers.
This is a significant risk and can lead to cost overruns. Additionally, delays can also lead
to capital crunch with a large number of stores bunching up.
Increased competition
Pressure on margins due to cost escalation and competition
Escalation in lease rentals
Escalation in lease rentals and administration expenses can impact margins.
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