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Recommendation From Department Stores Sectors


This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

Shoppers Stop 

BSE Code: 532638 
CMP: Rs 497 
FV: Rs 5 
BSE Volume: 1509 


Healthy SSSG
Topline traction across all segments
Reduction in debt 

Shoppers Stop is a retailer for an assortment of household and consumer products. Its merchandise include apparels and non-apparels such as cosmetics, personal accessories, leather goods, home wares, electronics, books and music. Through its website, it offers international and national brands of apparels; gifts and fashion accessories such as watches, artificial jewellery, handbags, fragrances, footwear, home furnishing and decor products. 

On the standalone front, the company's total income from operations rose to Rs 999.15 crore in Q3FY19 as against Rs 963.22 crore in Q3FY18, posting a growth of 3.73 per cent. EBITDA stood at Rs 97.2 crore in Q3FY19 versus Rs 79.35 crore in Q3FY18, registering an increase of 22.49 per cent. The net profit climbed to Rs 44.32 crore in Q3FY19 from Rs 41.77 crore in Q3FY18, thereby rising 6.10 per cent. EPS soared to Rs 5.04 in Q3FY19 from Rs 1.96 in Q3FY18, posting a growth of 157.14 per cent. 

The revenue was mainly driven by healthy same store sales growth (SSSG) of 8.9 per cent YoY – the highest in the last five quarters. EBITDA margin was truncated owing to the surge in employee cost, rental costs and other expenses. Despite this, the operating margin grew 150 bps YoY to 9.7 per cent. In an effort to improve its balance sheet, the company managed to further reduce its debt significantly. As such, it holds a cash surplus of Rs 113 crore as of Q3FY19. 

The company posted growth across all categories. The watches and beauty segments produced low double digit growth. In the apparels segment, Indian wear was the chief contributor as it grew 21 per cent YoY, closely followed by the denim segment, which grew 15 per cent YoY. Omni channel sales improved 58 per cent YTD. Furthermore, the company added five beauty format stores, while four departmental stores are expected to open in Q4FY19. The number of members under the customer loyalty programme is steadily growing. Branded beauty products, which fetch better margins than apparels, are contributing to the topline since the past few quarters. 

The company faces some degree of uncertainty pertaining to the amended FDI norms which prohibit entities in which a e-retailer has an equity stake from selling its products. If the government does not provide clarity, the company will cease selling its products on the Amazon platform. However, the impact of the same will not be drastic as only 2 per cent of the company’s revenue is generated via the e-commerce route. 

In an attempt to enhance the share of private label brands, the management has undertaken several initiatives such as setting up a new design studio and testing lab, reshuffling its product portfolio and employing a new head of design and management team. Going forward, the company is focused on scaling up the share of private label brands to achieve margin expansion and revival in SSSG. The management commentary reiterated its guidance to conclude FY19 with 5 per cent SSSG and achieve EBITDA margin expansion of 70-80 bps YoY. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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