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Focusing on omni-channel sales

Shoppers Stop’s (SHOP) Q4FY21 standalone revenues (non-GAAP) declined 10% YoY to Rs8.2bn with EBITDA of Rs110mn – broadly in line with our / consensus estimates. Non-GAAP gross margin and EBITDA margin expanded 190bps YoY and 163bps YoY respectively owing to increasing share of private labels. SHOP aims to add >20 stores across large and small formats in FY22 (store expansion plan for FY21 was deferred due to covid). Omni-channel sales increased 3x YoY on a low base and contributed 6.2% of total sales (up 430bps YoY) in Q4FY21.

SHOP has net cash of Rs190mn as at Mar’21-end, post rights issue of Rs3bn at Rs140/sh. Factoring-in the impact of recent lockdown owing to covid resurgence, we reduce our EBITDA estimate for FY22E though we maintain it for FY23E. We downgrade the stock to ADD from Buy with DCF-based target price unchanged at Rs235/sh, given the likely gradual recovery in discretionary spends and reasonable valuation at 9.4xFY23E EV/E. Key risks: lower discretionary spends, and increasing online competition.

* Management expects the business to remain resilient amidst uncertainty in the near term. Over the medium term, SHOP will continue to prioritise on maintaining its volume-driven growth momentum and sustain costs to improve profitability. Footfall decline was restricted to 17% YoY in Q4FY21 vs 50% YoY decline in Q3FY21. However, on account of covid resurgence from mid-Mar’21, the company witnessed higher drop in footfalls thereby impacting revenues. Tier-2&3 towns continued to outperform metro cities as metro stores’ revenues declined 18% YoY, while nonmetro revenues were up 4% YoY in Q4FY21. Items per bill increased 15% YoY while ATV increased 6% YoY in Q4FY21.

* SHOP achieved cost savings of Rs430mn in Q4FY21 and Rs4.3bn in FY21. Q4FY21 gross margin (non-GAAP) expanded 190bps YoY to 32.7% owing to improved mix from private brands, up 250bps YoY to 13% of sales. Other operating expenses were down 14% YoY.

* FCF was negative to the tune of Rs3.4bn in FY21 led by Rs2bn operating loss, working capital requirement of Rs0.6bn, and capex of Rs0.8bn. The same was funded by rights issuance of Rs3bn during FY21.

* Improvement in key strategic pillars: ‘First Citizen’ (FC) customers contributed 72% to sales with ATV up 1% YoY. SHOP added 106k customers in Q4FY21 taking the total count to 7.8mn as at Mar’21-end. ‘Personal Shoppers’ contributed 15% (+80bps YoY) of sales. Private labels’ share rose 250bps YoY to 13% of sales owing to 38% volume growth led by sharpened prices. Beauty portfolio contributed 17.1% to sales (+10bps YoY) in Q4FY21. Omni-channel sales grew strong at 3x YoY on a low base and contributed 6.2% of total revenues in Q4FY21.

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