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Analyst Research Report Snapshot


Shoppers Stop (SHOP) - Qtr. Update - Dated - January 31, 2014




Axis Capital Limited


03 Feb 2014





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While departmental store operating performance was in line with expectation, sustained losses in HyperCity (51% subsidiary) have created a funding gap at the parent/standalone level and increased debt levels/interest cost for Shoppers Stop (Bloomberg: SHOP IN). Slow traction in sales productivity alongside weak consumption environment leads us to believe that HyperCity will achieve operating breakeven only by FY17E (earlier FY15) thus requiring higher investment by parent. Consequently, we revise downwards our standalone earnings by 10%/8% in FY14E/FY15E to factor in higher interest expense. We also rollover our TP to FY16E. Our SoTP-based TP stands revised to Rs 368 (Rs 310 earlier). Maintain HOLD. At CMP of Rs 383, our TP implies a downside of 4%. Key concall highlights  Consumption environment remains weak: Apart from base effect, weak consumer sentiments impacted like to like (LTL) volumes (1% degrowth). Fine jewellery saw volumes declining 20%. Southern (oversupply) and Western (subdued wage growth) regions are witnessing below average growth. Also, sales season commenced a week earlier and is expected to be longer by 2 weeks compared to last year  Management expects standalone operating margin to hit 8% levels (our estimate 6.3%) by FY16E: LTL store margin is currently at 11% (up 100 bps YoY). As pace of expansion slows and LTL-to-new store mix becomes more favorable (~80% from 75% currently), margin is expected to improve considerably  HyperCity in consolidation phase: Management is undertaking several initiatives to boost profitability such as exiting low margin CDIT products, resizing stores (4 stores will be resized by FY15 end), increasing fashion share (currently 13%) Regards, Hemant Patel (ED – Consumer) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1105 Shiv Nanda (AVP- Consumer) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1124

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