Hold Shoppers Stop, target price Rs 225: Emkay Global

Emkay Global has given a hold rating to Shoppers Stop with a 12-month target price of Rs 225. The share price moved down by -1.72 per cent from its previous close of Rs 177.60. The last traded stock price is Rs 174.55.

Revenue declined around 10 per cent year on year, in line with the brokerage estimates, due to temporary store closures in March’20. The company saw 2.4 per cent like-to-like (LTL )growth in the Jan-Feb’20 period, but saw an overall decline of 16 per cent LTL in Q4 revenues.

FY20 revenues declined ~3 per cent year on year. EBITDA loss at Rs 170 million was disappointing due to higher costs. In FY20, margins fell around 200 bps year on year to 5.3 per cent. Shoppers’ Stop expects successful rental negotiations (already achieved in 56 per cent of stores) and significant cost rationalisation to help margins in FY21E.

Investment Rationale

According to the brokerage, FY21E would see a significant decline in revenues and erosion in profitability. It is waiting for recovery trends and initiatives to get comfort on the long-term growth outlook.


The brokerage has cut its FY21- 22 estimates sharply due to the extension of the lockdown and delays in reopening stores against our earlier expectations. The focus on cost saving and balance sheet strengthening is positive but the brokerage remains cautious and awaits clarity on rental negotiations and visibility of demand recovery. It maintains the hold rating, with an unchanged target price of Rs 225, based on 10 times FY22 comparable EBITDA.

Key risks: Further slowdown in consumer spends on account of Covid-19 and higher competition from online.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 724.38 crore, down -28.91 per cent from last quarter sales of Rs 1018.99 crore and down -10.86 per cent from last year's same quarter sales of Rs 812.64 crore. The company reported net profit after tax of Rs -127.22 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 63.86 per cent stake in the company as of March 31, 2020, while FIIs held 6.96 per cent, DIIs 21.13 per cent and public and other 8.05 per cent.