Shoppers Stop Results Review Report - Better-than-expected print - HDFC Securities

STOP, given its predominant mall-based presence (~87% of stores), remained among the worst-hit companies by the pandemic in FY21 within our apparel universe. However, 4Q recovery (95% of baseline sales) has been better than expected (HSIE: -87.5%). Gross margin improved sequentially (GAAP: 40.9% vs HSIE: 37.9%). Absolute operating cost structure was in line. We continue to remain circumspect on the longevity of the business as cost arbitrage between pure-play department stores and online platforms continues to shrink with each passing year. We meaningfully cut our FY22 EBITDA estimates to account for the second wave impact. FY23 EBITDA estimates remain largely unchanged. Maintain SELL recommendation with a DCF-based TP of INR 180/sh (implying 9x FY23 EV/EBITDA).

4QFY21 highlights: Q4 saw ~95% recovery in sales (INR 6.7bn) but on a low base. Two-year sales declined at ~8% CAGR. Footfalls were down 17% but higher bill sizes (+6% YoY) and growth in digital sales (+188% YoY) cushioned the sales decline to ~5%. STOP expects a weak Q1 due to lockdowns and higher mall salience (73 of 84 stores in malls). The company closed six department stores and opened one in FY21 (84 stores vs. 89 at FY20-end). It expects to open 10 department stores and 10 beauty stores in FY22, with a Capex of ~INR 0.8bn (funded via internal accruals). Reported GM improved 95bps YoY to 40.9% (HSIE: 37.9%), courtesy better full-price sales in revenue mix and improving private label mix (+250bp YoY). Reported EBITDA grew ~25% YoY to INR 956mn. EBITDAM expanded 344bps to 14.2% (HSIE: 9%). The beat was primarily a function of better-than-expected revenue and GM print. Absolute cost structure (INR 1.8bn) remained in line. Cash and equivalence stood at INR 1.7bn and debt stood at Rs1.3bn at FY21-end.

Outlook: Company sports a net cash position (post the INR 3bn rights issue). However, we continue to remain circumspect on the longevity of the format (pure-play department stores) as their cost arbitrage vis-à-vis online platforms continues to shrink rapidly. This makes the former less competitive with time. Hence, we maintain our SELL recommendation on the stock with a DCF-based TP of INR 180/sh (implying 9x FY23 EV/EBITDA).

Shares of SHOPPERS STOP LTD. was last trading in BSE at Rs.236.85 as compared to the previous close of Rs. 239. The total number of shares traded during the day was 27150 in over 926 trades.

The stock hit an intraday high of Rs. 246.5 and intraday low of 236.35. The net turnover during the day was Rs. 6520447.

Source : Equity Bulls

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