Shoppers Stop’s (SSL) Q4FY13 sales jumped 15% YoY with PAT increasing
10.4% YoY. Key positives include: (1) departmental store like-to-like (LTL)
sales at 10% YoY despite high base of 10% and economic slowdown; and
(2) surge in HyperCity’s LTL gross margin to 21% (20.7% in Q4FY12) and a
significant rise in LTL sales growth to 11% (3% in Q3FY13). Key negative
was 53bps YoY decline in EBITDA margin. Expansion momentum
continued with a net addition of seven stores (five in Q3FY13). With
restoration of zero excise duty on branded apparel, we anticipate
recovery in SSL’s sales volume as gross margin benefit is passed on
partially to consumers. Also, with a robust expansion plan (to add 8
departmental stores and 2 HyperCity stores in FY14) mostly funded by
internal accruals, we maintain ‘BUY’.
This report also contains Q4FY13 conference call highlights.
Gross margin expands, but high expenses dent EBITDA margin
SSL’s standalone revenue surged 15% YoY aided by LTL volume growth of 1% YoY and
9% increase in ASP. Gross margin expanded 121bps YoY in Q4FY13. However, EBITDA
margin declined 53bps YoY due to rise in staff cost (up 69bps YoY), electricity (up 15bps
YoY) and other expenses (up 67bps YoY). Net profit grew 10.4% YoY to INR152mn.
HyperCity sales recover; LTL maintained
Average selling price in the departmental store format rose 9% YoY to INR1,028,
though LTL volumes increased a mere 1% YoY (LTL volume had increased 3.5% YoY in
Q3FY13 aided by the festive season). First Citizen members club touched 2.888mn,
which contributes 69% to sales. HyperCity reported a net loss of INR218.7mn, though
store level profit surged for the seventh consecutive quarter.
Outlook and valuations: Consumer sentiment improving; maintain ‘BUY’
On FY15E, we assign EV/sales target of 1x to HyperCity business and 1.2x to SSL
departmental business arriving at target price of INR498. With recovery in sales due to
reduction in apparel prices and likely recovery in discretionary spends, we maintain
‘BUY’ and rate it ‘Sector Performer’.
Q4FY13 Conference call | Key takeaways
Q4FY13 sales: 15% YoY sales growth in SSL departmental stores as well as overall growth in
Q4FY13. SSL’s LTL sales grew 10% YoY. While LTL sales growth for stores greater than five
years was 4%, for stores less than five years it was 19%. Sales per sq. ft. on chargeable area
stood at INR2,109 (INR1,993 in Q4FY12). Contribution of apparel sales increased to 60.3% in
Q4FY13 compared to 59% in Q4FY12. Non-apparel consists of home, leather, watches,
jewellery, electronics and personal accessories. The share of non-apparel sales decreased to
41.0% in Q4FY13 vis-à-vis 39.7% in Q4FY12 primarily due to drop in fine jewellery sales. Fine
jewellery sales dipped slightly due to fluctuating gold prices. Private label sales increased by
14% YoY in Q4FY13. Private label mix increased 0.1% during the quarter.
Number of stores: As of FY13 end, there were 55 SS stores, 42 Crossword stores, 13 Home
Stop stores, 4 Mother Care stores, 46 MAC/Estee/Clinique stores and 12 HyperCity stores.
This amounts to more than 4.81mn sq. ft. across 25 cities.
LTL growth in FY14: 7-8% LTL growth expected in FY14. H1FY14 is expected to perform well
as the base is low.
Q4FY13 segment-wise YoY sales growth: Food grew 12%, fashion 37%, sports 17%;
electronics category declined.
FY13 segment-wise sales YoY growth: Fashion 28% growth, food 5% growth.
Discount season in FY13: Less than 20% of FY13 sales were during discount season.
Discounting period in Q4FY13: There was only one week of extra discounting period
(compared to the normal run rate) in Q4FY13. There was one week of less discounting
period compared to Q4FY12. In spite of this, volume grew 1% YoY. The reduction in
discounting period boosted margins and apparel growth.
Region-wise performance: North and East India have been doing well. This is followed by
South India. Lowest growth in West India. As per management, a booming stock market
improves consumer sentiment.
Full price merchandise sales in FY13: Sales have been 3-5% higher than FY12.
EBITDA margin expectations: In FY14, there will not be much change in EBITDA margin.
Excise benefits: As per management expectations, approximately one third of excise
benefit will be passed on to customers, one third will be used for advertising and promotion
and one third will be retained in margin.
New store opening plans in FY14: SS – 8, HyperCity – 2, Specialty - 10, Home stop - 2. Out
of these, as of April 2013 end, 3 SS stores, 1 HyperCity (30,000 sq. ft) store, 1 Home Stop
store, 3 Specialty stores have been opened.
HyperCity: The Company is open to operating HyperCity stores in both malls and non-mall
properties. Shoppers Stop will not be competing with Ikea. Currently, there are 4 positive
EBITDA Hyper city stores.
Apparel share in HyperCity sales: Apparel comprised 9.8% of sales mix in Q4FY13.
Volume growth in HyperCity: All categories posted volume growth, except CDIT (Consumer
Durables and IT business). Food volumes increased 2%. Fashion volumes increased 56%.
EBITDA breakeven in HyperCity: The Company is focusing on revenue growth. Signing new
smaller stores and downsizing existing stores. Aim to grow apparel sales to 15% of total
sales (from 7.5% currently). All these 3 parameters will lead to EBITDA breakeven in the
next 2 years.
Compact HyperCity format (30,000 sq. ft): The compact format has an area of 30,000 sq. ft.
It does not have furniture and electronics (as a separate section). Going ahead, half of the
new stores to be opened will be of compact format. Compact HyperCity stores will be used
to complement the larger formats. Globally, this size is called a supermarket rather than a
hypermarket. No compact HyperCity store is planned in Mumbai in the next 18 months at
least. Trading densities in compact HyperCity stores are likely higher than larger format
stores by more than 20%.
Consumer sentiment: In H1FY13, consumption trend was slow. However, in H2FY13, the
consumption trend has improved vis-à-vis H1FY13.
Pune and Chennai: Facing tough competition in these cities as there is excess retail space.
MAC/Estee/Clinique: These are amongst the most productive and profitable formats and
hence the company plans to scale them further.
Shop in Shop: Shop in Shop will always be more profitable than standalone.
Cash from operations: INR1.2-1.25bn in FY14.
Per square feet capex: INR1,500 for both SS and HyperCity.
Capex: Same as expected cash level in FY14 (INR1.2-1.25bn). 85% of HyperCity capex will be
met via internal cash generation while balance will be via debt. Currently, there is INR3.3bn
debt in SS, INR1.5 in HyperCity.
Outlook and valuations: Consumer sentiment improving; maintain ‘BUY’
With restoration of zero excise duty route, as existed prior to Budget 2011-12, in respect of
branded readymade garments and made ups, SSL is expect to see at least 50bps YoY gross
margin expansion. As the company passes on this benefit to consumers, we expect volumes
to recover gradually, further aided by recovery in discretionary spending led by interest rate
cuts and reforms. SSL is one of the best run retail companies and will reap benefits of
expansion and FDI in HyperCity over the long term.
We value SSL on EV/sales as the company is operating at low profitability (due to losses in
HyperCity) which does not reflect the inherent profitability of the current business (thus
EV/EBITDA or P/E valuation is not fair). As we roll over to FY15 we assign EV/sales target for
HyperCity business of 1x and 1.2x to SSL departmental business. We arrive at target price of
INR498. Maintain ‘BUY’ and rate it ‘Sector Performer’.
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