Shoppers Stop's Q3FY20 results (Outperformer) - Muted LTL growth impacts overall performance
Q3FY20 result highlights
- On reported basis (including impact of IndAS 116 accounting), standalone net sales declined by 0.5% yoy to Rs9.9bn (est: Rs10.1bn), EBITDA increased by 2.0x to Rs1.97bn (est: Rs1.87bn), net loss stood at Rs52mn (vs Rs443m PAT in 3QFY19).
- Comparable gross revenues increased by 3.1% yoy to Rs12.9bn (IDFCe: +2%), with LTL sales growth of 1% yoy. Conversions were up 0.4% yoy, ASP was up 2.3% and transaction size was up 7% yoy.
- Comparable gross margins were up 10bps yoy to 33.2%. Staff cost increased by 5% yoy. Adj for IND AS impact, rental costs increased by 6% yoy while other expenses were down 4% yoy. Resultant EBITDA increased by 5% yoy to Rs1.02bn with a margin expansion of 50bps yoy to 10.2%.
- On reported basis, rental costs & other expenses were down by 84%/6% yoy respectively on account of IND AS 116 implementation. Resultant EBITDA increased by 2.0x with a margin of 19.9%. Other income was up 2.3x yoy, interest cost was up 16x. Depreciation was up 3.3x yoy. PBT declined by 9% yoy to Rs629m. Higher tax outgo resulted in loss of Rs52m for the quarter.
Key positives: Tight control over overhead costs
Key negatives: Weak LTL growth.
Impact on financials: Factoring weak performance, we have cut EBITDA (Ex- IND AS) by ~7/8% for FY20/21E.
Valuations & view
Shoppers Stop reported muted set of results with LTL growth remaining weak. Given the challenging demand environment, LTL growth is likely to remain muted, which coupled with new store addition will restrict sharp margin expansion in the near-term. However, we believe benefit of internal initiatives (re-doing entire private label strategy, aggressive store expansion, scaling up beauty format, new brand launches) will start to improve LTL trajectory which coupled with focus on ZBB based cost efficiency program should aid recovery in earnings trajectory. Valuations at 11.7x FY21E EV/EBITDA (ex-Ind AS 116 basis) are undemanding. Maintain OP, roll-forward price price target to FY21E (13x FY21E ex-IndAS 116 EBITDA).
Shoppers Stop Limited is a holding company. The Company is engaged in the business of retailing a range of household and consumer products through departmental stores. It operates through approximately 80 such departmental stores located in approximately 40 cities. Its products include apparels and non-apparels. Its non-apparel category includes cosmetics, personal accessories and leather goods, home wares, electronics, books and music. The Company, through its Website, Shoppersstop.com, offers international and national brands in men's, women's and kids apparel; gifts and fashion accessories, such as ladies watches, men's watches, artificial jewelry, fine jewelry, handbags, fragrances, men's and women's footwear, home furnishing and decor products. It has over six private brands namely STOP, Kashish, Life, Haute Curry, Velorio Fratini and Elliza Donatein. It offers First Citizen Loyalty Program for customers. Its application is available on Google Play Store and Apple App Store.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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