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Shoppers Stop (SHOP) - Qtr. Update - Dtd. - January 30, 2013




Axis Capital Limited


31 Jan 2013





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Like to like (LTL) revenue growth of 12.5% (3.5% LTL volume growth) in Q3 was the highest in past 7 quarters, boosted by festive season, marriage sales and pent-up demand. Consequently, standalone revenue grew 20% YoY to Rs 6.5 bn (in line) despite the company adding only a single departmental store. While standalone EBITDA margin declined 70 bps YoY to 6.9% (est. of 6.7%), there was a sizable improvement in margin sequentially led by higher throughput. Consequently, EBITDA grew 9% YoY to Rs 450 mn (in line). PAT was also in line with estimate at Rs 171 mn. Recovery in LTL growth points to better times ahead: While the improvement in Q3 LTL growth can be attributed to seasonal elements such as marriages and festivities, we expect softening inflation and lower interest rates to divert incremental demand towards discretionary categories like apparel. Management indicated LTL growth can sustain at 7%-8% in FY14. Operating margin at 4-year trough; set to mean revert: High LTL growth and rising throughput in new stores (< 2 years old have shown over 30% growth in revenue) has enabled a sequential improvement in margin. An upturn in consumption environment as anticipated will improve new store productivity and drive a 200 bps improvement in margin over FY13-15E to 7%. Upgrade to HOLD: We roll forward our SOTP valuation to FY15E, which factors in the earnings rebound. Standalone business is valued at Rs 357 per share (25x FY15E earnings) and HyperCity at Rs 61 per share (1x EV/Sales). Our revised SoTP stands at Rs 418 (earlier Rs 335), which implies 4% downside from CMP of Rs 436. 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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