Shoppers Stop::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Consumption sentiment remains positive; expects LTL sales growth of 8-10%
 Consumer sentiment remains positive though there has been some deterioration in
the past few months, mainly led by various scams and high inflation.
 Shoppers Stop (SHOP) has seen lower LTL sales growth of 7% in 1QFY12, with
volume decline of 5% and customer entry growth of only 3%. The management
expects to sustain 8-10% LTL sales CAGR.
 SHOP believes that its model is scalable in 35 cities, as against its current presence
in 19 cities. Though store additions in same cities will result in some cannibalization
in the near term, this will enable economies of scale and help increase margins.
Incremental investments largely in well-established core portfolio
 SHOP has launched four stores in FY12, and plans to end the year with the addition
of 10 stores. It would also look at adding 15-20 specialty stores like EL and MAC.
 The company has largely used the funds raised from QIP. It is confident that standalone
operations would be able to fund growth in the near term.
 Margins are likely to remain around current levels in the near term; however, GST,
lower store openings and lower import duty on beauty products will boost margins
in the medium term.
 FDI in retail will not impact the departmental store format, as departmental store
chains have less global character.
Hypercity to turn EBITDA positive by FY13
 Hypercity is likely to close the year with 12 stores (10 currently), with likely addition
of ~4 stores every year. The management is confident of making it EBITDA positive
by FY13.
 Stores in tier-2 cities like Amritsar and Ludhiana are performing below expectations,
while the one in Jaipur has started improving. The management plans to add another
couple of stores in the Mumbai region by end of FY12.
 The proportion of food and grocery has increased to 61% of sales from 55% a year
ago, which has impacted profitability. The management intends to increase sales of
apparel and general merchandise to enhance profit margins.
Valuation and view
 SHOP plans to increase retail space at a fast clip across formats. Decline in LTL
sales growth in Shoppers Stop and increasing loss in Hypercity Retail are key
headwinds.
 SHOP is one of the best plays on rising consumerism in Urban India. However, the
stock trades at 33.3x FY12E EPS of INR11.8 and 25.7x FY13E EPS of INR15.3.
Neutral