FREE

Shoppers Stop's Q3FY19 results (Outperformer) - Healthy recovery in SSSG drives earnings…

Q3FY19 result highlights

• Standalone net sales increased by 3.7% yoy at Rs10bn (est: Rs10.3bn), EBITDA increased by 22% yoy to Rs972m (est: Rs951m), Adj PAT increased by 34% yoy to Rs443m(est:Rs410m).
• Adjusting for changes on account of GST and IND AS 115, revenues increased by 9.9% yoy with a LTL growth of 8.9%, highest in last 5 quarter. The growth was broad based across zones and categories. Further overall mix has seen improvement as private brand sales increased by 29% yoy.
• Reported gross margins increased by 260bps yoy, Adjusted gross margins were up 100bps yoy.
• Staff cost, rental expenses and other expenses increased by 6%/8%/7% respectively. Adjusted EBITDA increased by 22.7% yoy with a margin expansion of 90bps yoy.
• Other income was down 15% yoy, interest expense was down 67% yoy aided by debt reduction. Resultant PBT increased by 59% yoy, however higher tax rate (36% vs 24% in base quarter) resulted in adj PAT increasing by 34% yoy for the quarter.

Key positives: Healthy SSSG in SHOP

Key negatives:  Higher tax rate

Impact on financials: No material change in FY19/20E EBITDA

Valuations & view

After a sub-par 1HFY19 performance, SHOP reported healthy performance in 3QFY19 led by better than expected SSSG for departmental stores and improvement in private label mix. We are factoring ~7% SSSG for FY20E aided by improvement in private label share, scale up in omni-channel/Personal shoppers sales which coupled with continued strengthening of its beauty portfolio should aid overall revenue growth. Further improved mix and operating leverage will aid margins resulting in a 22% EBITDA CAGR over FY18-20E. Valuations at 14x FY20E EBITDA remain attractive; maintain Outperformer.