Shoppers Stop - Loosening purse strings spur sales - Edelweiss

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'.

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'.

Source : Equity Bulls

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