Edelweiss is bullish on Shoppers Stop has recommended buy rating on the stock with a target price of Rs 680 in its research report dated April 30, 2018.
Edelweiss' research report on Shoppers Stop
Shoppers Stop’s (SSL) Q4FY18 revenue and EBITDA came in line. Key highlights: i) disappointing LTL sales—declined 4.1% YoY on a base of -1.1%—due to lower sale days & store renovations; ii) debt reduction on track—down >INR4.5bn in past one year, leading to interest cost falling >55% YoY; and iii) private labels’ contribution fell to 8.5% led by inventory correction (pick up in this segment is crucial). Factoring store renovation coming to an end and complete benefits of Amazon tie up to be reaped only from H2FY19, we have pruned FY19E and FY20E EBITDA by 13.9% and 16.5%, respectively. SSL’s strategy of exiting non-core businesses, exclusive deal with Amazon India and intention to be debt free by FY19 are key catalysts. Maintain ‘BUY’.
Outlook
We believe, SSL is in a sweet spot as: 1) tie up with Amazon will boost omni-channel (100% YoY growth rate expected over next 2-3 years); 2) interest cost has dipped as funds garnered from the Amazon deal & HyperCity sale were utilised to pare debt; and 3) hive off of non-core businesses will enable management focus on core departmental format. At CMP, stock is trading at 12.5x FY20E EV/EBITDA. We retain 15x FY20E EV/EBITDA multiple to arrive at TP of INR680 (earlier INR691). Maintain ‘BUY/SO’.
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