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Emkay Global
Shoppers Stop (Hold)
CMP: ₹347.65
Target: ₹430
Shoppers Stop’s Q1FY20 comparable revenues and EBITDA grew 5 per cent and 18 per cent, respectively (ahead of est. by 6 per cent). Accounting adjustments (Ind AS 116) resulted in lower revenue growth at 1 per cent and a 79 per cent PAT decline due to higher depreciation.
Despite lower footfalls, SSSG (same store sales growth) was healthy at 5 per cent on better conversion rate and transaction size. Management’s FY20 guidance continues to be soft with SSSG in mid-single digit and 80bps margin expansion. Expansion pace will improve to 6-8 new stores.
We like management’s initiatives on revamping its product portfolio, focus on private labels and beauty store format; however, a turnaround still seems slower as growth guidance remains soft. The new ‘Arcelia’ initiative appears differentiated, but success and scalability are yet to be known.
Operational numbers are largely intact, but we cut FY20/21E EPS by 24 per cent/15 per cent, adjusting for Ind AS factoring in higher depreciation.
The recent correction makes valuations reasonable, but without pick-up in growth, upside will be limited. Maintain ‘Hold’ with a target price of ₹430, now valuing it at 12x FY21E EV/EBITDA (IGAAP).
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