EUR 120.00 For Business Accounts Only

MOSL : SHOPPERS STOP: Ticking the right boxes

.  SHOPPERS STOP: Ticking the right boxes

(SHOP IN, Mkt Cap USD1b, CMP INR780, TP INR805, 3% Upside, Neutral)

• Aided by price hikes, SHOP reported a healthy 19% revenue growth in 2QFY23 from pre-COVID levels (8% beat) on healthy (+10%) SSSG and sustained volumes. EBITDA grew 2.3x YoY (22% over pre-COVID levels), with a 540bp margin improvement.
• 1) A strong recovery in revenue, backed by an improved pricing; 2) expansion within the Beauty and Private Label segment; and 3) healthy annual 12/15 store additions for SHOP/Beauty are expected to drive business growth  going forward. We expect a revenue/EBITDA CAGR of 30%/67% over FY22-24. Sustained SSSG and increased competition from newly launched Centro will remain key monitorables. We maintain our Neutral rating with a TP of INR805 per share.

Revenue up 19% (8% beat) v/s pre-COVID levels on healthy LFL growth

• Standalone revenue grew a healthy 60%/19% from 2QFY22/2QFY20 levels to INR10.1b (8% beat), aided by price hikes and a healthy SSSG of 10% from pre-COVID levels.
• Gross margin improved by 300bp YoY to 41.2% in 2QFY23 (est. 41%), which can be attributable to the improved share of Private Labels. However, there was a 100bp contraction on a sequential basis, possibly due to postponement of the end of season sale as indicated in 1QFY23.
• EBITDA grew by ~2.4x YoY (in line) to INR1.7b, with a margin improvement of 540bp to 16.6% led by healthy revenue growth. This was an expansion of 40bp from pre-COVID levels.
• SHOP reported a PAT of INR181m (12% miss) v/s a loss of INR30m/INR54m in 2QFY22/2QFY20. Adjusted for a one-time write-off of INR20m towards ICD receivable from Crossword Bookstores Pvt. (Crossword), PAT stood at INR201m (in line).
• The company opened a Department and two Beauty stores in 2QFY23. It has a further six Department stores under fit-out.

Highlights from the management commentary

• The strong 19% growth over pre-COVID levels is due to the 10% SSSG attributed to the 10% price hike taken in Feb’22. Despite that, volumes have sustained. SHOP is also seeing healthy growth in the ongoing festive season.
• The management expects mid to high single-digit operating margin in the short term, backed by an improved focus on the margin accretive Beauty segment, improved product mix, and rationalization of fixed costs.
• It has maintained its guidance to open 15 Beauty stores in FY23, of which seven have already been opened and four are under fit-out. Going forward, this should increase with the launch of the newly acquired brands: L’Oreal and Clarins.
• The management expects the share of private brands within the Apparel segment to improve to 25-30% in the near term from 21% currently.