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Growth moderating
Shoppers Stop’s 1QFY12 results were below estimates with same store sales
growth of 7% leading revenue growth of 15%. Ebitda margins declined 60bps
yoy while lower interest costs boosted net profit growth to 18%. Overall
Ebitda and PAT were 18-22% below our estimates. Looking ahead, the
company expects high single digit same store growth and flattish margins for
the year. We cut earnings by 8% but retain our valuation given growth in
Hypercity. While we admire Shoppers Stop’s as a retailer, we see its valuation
being at odds with cyclical headwinds and earnings risks. Downgrade to SELL.
1QFY12: same store sales moderated while costs rose
During 1QFY12, Shoppers Stop reported 15% yoy growth in revenues, led by a
7% growth in department stores same store sales (volume decline of 5%). Sales
growth was depressed by high apparel prices, low availability and the extended
IPL. Costs were high due to three new store openings during the quarter and
another two slated for July, along with broader cost pressures – particularly on
staff costs. The combination of slowing growth and high costs caused Ebitda
margins to decline 60bps YoY to 6.2%, driving Ebitda growth of only 5%. PBT
growth was 15% and PAT growth 18%. Inventory rose Rs239m QoQ, driven
largely by new store openings, underpinning a Rs522m QoQ increase in debt.
Modest outlook for same store sales and margins, strong store growth
Shoppers Stop plans to add ~24 stores at the group level in FY12 at an
investment of Rs1.25bn with up to 10 in the department store format. The
visibility on store openings is high with five new Shoppers Stop stores opened so
far in FY12. However, the company expects same store sales growth to be in high
single digits with volume declines in apparel as well as cannibalisation from new
stores being a drag. This will also prevent significant margin expansion.
Hypercity – expanding but profitability some time away
Whilst Hypercity has seen continuing traction in sales (+27% YoY) and consistent
store openings, profitability remains patchy (store level Ebitda loss of Rs20m
against Rs9m of profit in 4Q). The company is cognizant of challenges in Tier II
locations and is targeting primarily tier I cities in the near term. However, some
drag from existing small city stores on profitability will remain.
Downgrade forecasts and recommendation
We have downgraded our forecasts for Shoppers Stop by 8% for FY12-13,
factoring in a more modest same store sales growth and margin outlook. We have
maintained our valuation of Rs330, attaching a higher price to the Hypermarket
stake (0.7x FY13 EV/Sales). The risk to earnings remains to the downside in case
discretionary consumer spend softens further. This is at odds with the punchy 28x
FY13 PE. We downgrade Shoppers Stop to SELL from U-PF earlier
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growth moderating
Shoppers Stop’s 1QFY12 results were below estimates with same store sales
growth of 7% leading revenue growth of 15%. Ebitda margins declined 60bps
yoy while lower interest costs boosted net profit growth to 18%. Overall
Ebitda and PAT were 18-22% below our estimates. Looking ahead, the
company expects high single digit same store growth and flattish margins for
the year. We cut earnings by 8% but retain our valuation given growth in
Hypercity. While we admire Shoppers Stop’s as a retailer, we see its valuation
being at odds with cyclical headwinds and earnings risks. Downgrade to SELL.
1QFY12: same store sales moderated while costs rose
During 1QFY12, Shoppers Stop reported 15% yoy growth in revenues, led by a
7% growth in department stores same store sales (volume decline of 5%). Sales
growth was depressed by high apparel prices, low availability and the extended
IPL. Costs were high due to three new store openings during the quarter and
another two slated for July, along with broader cost pressures – particularly on
staff costs. The combination of slowing growth and high costs caused Ebitda
margins to decline 60bps YoY to 6.2%, driving Ebitda growth of only 5%. PBT
growth was 15% and PAT growth 18%. Inventory rose Rs239m QoQ, driven
largely by new store openings, underpinning a Rs522m QoQ increase in debt.
Modest outlook for same store sales and margins, strong store growth
Shoppers Stop plans to add ~24 stores at the group level in FY12 at an
investment of Rs1.25bn with up to 10 in the department store format. The
visibility on store openings is high with five new Shoppers Stop stores opened so
far in FY12. However, the company expects same store sales growth to be in high
single digits with volume declines in apparel as well as cannibalisation from new
stores being a drag. This will also prevent significant margin expansion.
Hypercity – expanding but profitability some time away
Whilst Hypercity has seen continuing traction in sales (+27% YoY) and consistent
store openings, profitability remains patchy (store level Ebitda loss of Rs20m
against Rs9m of profit in 4Q). The company is cognizant of challenges in Tier II
locations and is targeting primarily tier I cities in the near term. However, some
drag from existing small city stores on profitability will remain.
Downgrade forecasts and recommendation
We have downgraded our forecasts for Shoppers Stop by 8% for FY12-13,
factoring in a more modest same store sales growth and margin outlook. We have
maintained our valuation of Rs330, attaching a higher price to the Hypermarket
stake (0.7x FY13 EV/Sales). The risk to earnings remains to the downside in case
discretionary consumer spend softens further. This is at odds with the punchy 28x
FY13 PE. We downgrade Shoppers Stop to SELL from U-PF earlier
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