Shoppers Stop Ltd. share price target

Shoppers Stop's 3QFY22 revenue recovered to 96% of 3QFY20 (pre-COVID) level, with LTL sales estimated to be positive. However, the INR400m opex towards omni-channel has curtailed EBITDA margin to 19.2% 70bp below the pre-COVID level. Yet, the company achieved profitability in over two years and ended the quarter with a net cash position. We have raised our FY24E EBITDA by 9% building 20% growth over FY20 pre-COVID base on recent healthy recovery. Management has an ambitious target of doubling sales by FY25 from the FY20 level, which requires strong...

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New initiatives like opening of 20 smaller size stores over the next six quarters, growth in its private label mix, and increased focus on high growth beauty business offers a good growth opportunity. However, its slow growth track record in similar areas in the past and weak footfalls in the Lifestyle Apparel category makes us hawkish. We have raised our FY23E...

With revenue in FY21 being significantly impacted by the pandemic (down 49% YoY), SSL undertook several cost optimisation initiatives with monthly operating cost run-rate decline from | 109 crore in FY20 to | 72 crore in FY21 (down 33% YoY). Annual cost savings were at | 433 crore in FY21. The management expects cost savings worth | 200 crore to be sustainable in FY22E. Re-engineered cost structure would aid EBITDA margins, going...

EBITDA dropped 25% YoY to INR956m (40% miss) on account of higher than expected SG&A; and EBITDA margin shrinking 350bp to 14.2%. The miss could be attributed to higher than estimated operational costs, with employee/SG&A; cost at INR660m/INR1.1b (est. INR605m/INR869m). Other income stood at INR207m (3x YoY), which includes INR96m adjusted for rent concessions. The company recorded an exceptional expense of INR124m towards impairment of equity investment and financial assistance...

For YTDFY20, negative FCF stood at | 305 crore. In a bid to strengthen the b/s, the company had proposed right issues worth | 300 crore which was fully subscribed. Subsequently, company retired debt worth | 125 crore and is net cash positive of | 46.0 crore as on December 2020. Management expects to open 10-11 stores in FY22E, with addition of ~ 2.5 lakh sq. ft. It is also looking to shut 5-7 unviable stores in FY22E. Of the targeted | 450 crore cost savings in FY21E, company has already achieved ~ | 390 crore in YTDFY21. We believe certain cost rationalisation measures to be structural...

15 August 2020 Shoppers Stops (SHOP) 1QFY21 revenues tanked 93.5% YoY (40% miss) due to store closures. However, better-than-expected cost control measures with 45% reduction in operating expense restricted EBITDA loss to INR1b (v/s est. INR1.1b and INR1.4b profit in 1QFY20). Despite outstanding cost rationalization, we have cut FY21 EBITDA by 37%, due to 10% revenue cut given the prolonged recovery expectation and lower gross margin. We have cut FY22E EBITDA marginally by 4%, led by revenue cut. Revenues plunged 93.5% YoY to INR539m (40% miss). Gross margin dropped 970bp to 32.1%. The revenue decline was due to complete store closures in Apr-May20 and partly in Jun20. Owing to the lockdown-led restrictions, SHOPs stores operated at 17.6% capacity in 1QFY21.

1) Languishing throughput, 2) rising cost of retailing and 3) shrinking cost arbitrage between this off-line pipe' (read: department stores) and online folks make us wary about the long-term vitals of this format. Ergo, we downgrade the counter to SELL (earlier NEUTRAL). Note: The de-rating cycle for global department stores has been quite severe and we fail to see why Indian counterparts buck the trend. We revise our DCF-based TP marginally upwards to Rs. 370/sh (earlier Rs. 360) largely mimicking revision in FY21/FY22 EBITDA estimates (+4% each) to factor in better SSSG and revenue per sq. ft on low base. Industry pioneer STOPs performance continues to be lackluster as 1) the department format continues to lose footfalls courtesy struggling legacy standalone stores. 2) Private label-led upside in top-line/profitability is expected to be gradual, if at all as the apparel space continues to fragment, 3) Cost of retailing is inching up (up 96bp/260bp YoY over 9MFY20/2 years), 4) Working capital continues to balloon, 5) Cost arbitrage between this off-line pipe and online folks continues to shrink.