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MOSL: Shopper's Stop (Neutral) - Standalone sales up 25%, PAT up 55%




Motilal Oswal Securities Ltd.


29 Oct 2013





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Shopper's Stop (SHOP IN, Mkt Cap USD0.5b, CMP INR339, Neutral) Gautam Duggad (Gautam.Duggad@MotilalOswal.com) / Ruchi Rudra (Ruchi.Rudra@MotilalOswal.com) Standalone sales up 25%, PAT up 55%: SHOP’s standalone sales for 2QFY14 grew 25% to INR7.25b (higher than our estimate of INR6.9b). LTL sales grew 15.5% (v/s our estimate of 12%) on a low base (2% LTL growth in 2QFY13), the highest in 10 quarters. LTL volumes improved 9%. Gross margin remained flat at 35.9%. However, savings in lease rentals (down 80bp) led to operating margin expansion of 50bp to 5.5% (v/s our estimate of 5.3%). EBITDA grew 36.7% to INR398m (v/s our estimate of INR364m) and the strong EBITDA performance flowed to PAT level, despite 290bp expansion in tax rate. PAT grew 55.2% to INR99m (v/s our estimate of INR105m) on a low base (67% decline in 2QFY13). HyperCITY posts highest ever quarterly loss: HyperCITY Retail (51% stake) reported sales of INR2.2b (INR2.2b in 1QFY14). LTL sales growth was sequentially lower at 9% (14% in 1QFY14) and LTL volumes grew 1% (4% in 1QFY14). Gross margin expanded 100bp to 21.7% and store level EBITDA was INR13m (INR4m in 2QFY13). However, corporate office expenses and higher depreciation costs resulted in loss of INR258m at PAT level (INR209m loss in 2QFY13), the highest ever quarterly loss for HyperCITY. Rising losses in HyperCITY concerning: During the quarter, SHOP added two departmental stores, two MAC stores and two Clinique stores (also closed one store). Total retail space stood at 5.17msf. Same store metrics in department stores improved, which is impressive, given the subdued consumer sentiment. However, rising losses in HyperCITY remain a concern and put to question the assumption of FY15 turnaround in HyperCITY. We note that cumulative losses in the last 14 quarters were ~INR3b (Shoppers Stop standalone entity made profits of INR2.17b over this period). Maintain Neutral: SHOP trades at 33x FY15E standalone EPS. Maintain Neutral, with a target price of INR355 (SOTP: Shoppers Stop at 20x FY15E EPS, HyperCITY at 0.8x FY15E Sales)

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