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Analyst Research Report Snapshot


Shopper's Stop (SHOP) - Qtr. Update - Dtd. - October 30, 2012




Axis Capital Limited


31 Oct 2012





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Higher discretionary offtake in Q2 aids revenue growth  Like to Like (LTL) growth recovered to 5% in Q2FY13 vs. 1% in Q1FY13 as the company witnessed marginal improvement in consumption environment.  Standalone revenue grew 17% YoY (our estimate 12%) to Rs 6.2 bn. Suboptimal throughput in new stores keeps operating margin under pressure  13 stores rolled out in FY12 are seeing extended breakeven due to challenging environment. Standalone EBITDA margin declined 260 bps to 4.6% (in line with estimate).  PAT came in at Rs 64 mn vs. expectation of Rs 102 mn, mainly due to lower other income and higher depreciation expense. Margin to remain subdued in FY13E but expect non-linear margin expansion in FY14  An upturn in consumption environment can improve store throughput and trigger significant operating leverage (EBITDA margin expanded 150 bps to 8.4% in FY11).  We expect sales growth (28%) to rebound in FY14 on pent up demand and improving retail demand-supply situation.  Improving throughput in new stores and sales mix change in tier II stores will facilitate a 160 bps margin expansion to 6.8% in FY14E.  We revise downwards our standalone EPS by 42% to Rs 5 in FY13E and by 8% to Rs 12 in FY14E to factor in higher than expected margin pressure and depreciation expense. Valuation rich; Maintain SELL: The stock has run up by 24% since June 2012 (trades at 34x FY14E standalone earnings) despite weak earnings traction. Standalone business is valued at Rs 300 per share (25x FY14E EPS). HyperCity is valued at Rs 35 per share (0.8x EV/S FY14E). Our revised SOTP-based TP stands at Rs 335 (Rs 349 earlier) implying 20% downside from CMP of Rs 418. Regards, Hemant Patel (Executive Director – Consumer) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1105 Shiv Nanda (Asst VP- Consumer) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1124

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