Neutral on Shoppers Stop - Motilal Oswal

Shopper's Stop (SHOP IN; Mkt Cap USD0.7b, CMP Rs371, Neutral)

3QFY11 results were above our estimates with adjusted PAT growth of 131% to Rs279m. Net sales grew 22% to Rs4.6b aided by strong same store sales growth of 22%. Gross margins contracted 130bp to 38.2% and lower lease rent (down 80bp), administrative expense (down 140bp) enabled EBITDA margin expansion of 90bp to 11.2%.

We estimate mid single digit same store sales growth and 70bp margin expansion over FY11-13. We are increasing standalone FY11 EPS estimates by 8% to Rs8.6 (Rs7.9 earlier) and FY12 EPS estimates by 4% to Rs13.1 (Rs12.6 earlier). Our estimates for FY13 are unchanged at Rs17.6.

We expect the department store format to be free cash flow positive and fund its growth in the coming years. However, Hypercity is likely to require incremental investment in the coming few years. We expect Hypercity to turn EBITDA positive by FY12 and PAT positive by FY14. The stock trades at 28.4x FY12E EPS of Rs13.1 and 21.1x FY13E EPS of Rs17.6 on a standalone basis. Maintain Neutral.

Source : Equity Bulls

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