Shoppers Stop Ltd - SSSG recovers; Margins continues to be subdued - Aditya Birla Money

SSL has posted 4QFY13 results and bottomline was below our expectation. Key highlights of result are as follow:

Key Highlights

- For 4QFY13, standalone net sales for SSL increased by 15.3% YoY to Rs. 6757.0 mn, led by SSS growth of 10%. The SSS growth was mainly price driven with increase in ASP by 9%, with volume growth of 1%. In 2HFY13, SSS growth has shown remarkable improvement of 11.1% as compared to that of 3.2% in 1HFY13, thereby reporting growth of 7.4% for full year FY13. Going forward, management expect SSS growth to be in the range of 7-8% in FY14E and FY15E.

- The company has reported Gross margin (excl other operating income) of 34% (up 40 bps YoY) for FY13. Management expect gross margin to expand by 50 bps in FY14E, led by relief in excise duty on branded garments in the last Union Budget. The company's strategy is to pass on one-third of the benefit to the consumer, utilise one-third for brand building and activation and keep rest with the company for expansion for margins.

- For 4QFY13, EBITDA increased by 5.4% YoY to Rs. 382.8 mn, however margin contracted by 50 bps YoY to 5.7%. Operating cost continues to put pressure on company's profitability with increase of 23.2%, 29.1% and 18.4% YoY in electricity, employee and lease rental cost to Rs. 157.5 mn, Rs. 437.5 mn and Rs. 566.6 mn respectively. Management expect EBITDA margin to gradually expand to the levels of 8% in next 24-36 months.

- Depreciation and Interest cost increased by 9.0% and 6.4% YoY to Rs. 125.0 mn and Rs. 78.5 mn respectively. Overall, in 4QFY13, Adj PAT increased by 10.4% YoY to Rs. 151.8 mn.

- Hypercity: For 4QFY13, Hypercity posted net sales of Rs. 1756.8 mn (up 7.0% YoY and excluding mobile, sales was up 11% YoY), EBITDA loss of Rs. 85.3 mn and PAT loss of Rs. 218.6 mn (as compared to loss of Rs. 222.4 mn in 4QFY12). The SSS growth (excluding mobiles) was 11%, with SSS volume growth of 3% and increase in ASP of 8%. The company has posted 7th consecutive quarter of store level EBITDA breakeven with store EBITDA of Rs. 10.7 mn. For Hypercity, the company aims to breakeven at EBITDA level in next 2 yrs by holding up operating expenses inline with inflation, opening smaller new stores, downsizing the stores (wherever the opportunity exists) and targetting to increase share of Fashion business to 15% from current 9.85 in FY13, in next 3 yrs.

Outlook: Consumer sentiments is much better as compared to that of six months ago and we believe, going forward, it is likely to improve further, led by govt effort to drive the growth of Indian economy. Going forward, we expect SSS to be in the range of 7-8%. In addition, full ramp-up of stores opened during FY12-FY13 period will aid in healthy topline growth coupled with margin expansion during FY14E-FY16E period. We expect SSL standalone sales, EBITDA and PAT to grow at CAGR of 23.4%, 35.5% and 52.5% to Rs. 37143 mn, Rs. 2320 mn and Rs. 923 mn respectively during FY13E-FY15E period. We expect EBITDA margin to gradually expand to 5.7% and 6.2% in FY14E and FY15E respectively from 5.2% in FY13.

Valuation: We believe SSL is the quality play on organised retail story of India and post aggressive capex phase in last 2 yrs, business is ready to reap benefits with likely healthy growth in profitability over FY13E-FY15E period. We are valuing the "Shoppers Stop" business at EV/EBITDA ratio of 18.7x FY14E EBITDA (5 yr mean of 1-yr fwd EV/EBITDA = 18.7x). We have valued 51% stake in Hypercity on FY14E EV/sales multiple of 1.0x and all equity investments as on FY12 balance sheet on book value. Our May14 revised fair value per share comes to Rs. 436.7/share and we retain our "Neutral" rating.

Source : Equity Bulls

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