Buy Baazar Style Retail Ltd For Target Rs. 450 By JM Financial Services
Baazar Style reported robust 37% YoY revenue growth led by area expansion (41%) as SSSG remained weak at -3% with flat SPSF to ~INR 7,970 due to shift of the Eid festival from 1QFY26 to 4QFY25 (normalised SSSG at 11%). EBITDA was 7% above our estimates led by ~300bps YoY expansion in gross margin owing to higher full price sales and better general merchandise mix, setting off the pain from higher cost of retailing. Underlying demand conditions remains healthy going into the festive season which will entirely fall in Q2 this time. FY26 guidance is maintained - (i) ~25% revenue growth led by 7-8% SSSG, (ii) 7-8% Pre-Ind AS EBITDA margin, (iii) 3-4% Pre-Ind AS PAT margin, and (iv) 40-50 store addition. ARS and WMS system will help the company to optimise inventory and reduce the requirement for incremental working capital despite addition of stores. It targets to reduce its debt from INR 1.6bn as of Jun’25 to INR 1.2bn by Mar’26. We marginally tweak our EPS estimates to adjust for upfront investments in manpower and technology, which, we believe, will help to prepare the company for a higher revenue pool and bolster its balance sheet. We maintain BUY with a revised TP of INR 450 (INR 400 earlier) as we roll over to Jun’27 EPS (30x P/E).
* Expansion-led growth as store addition remains healthy:
The company reported strong revenue growth of 37% YoY to INR 3.8bn. Growth was led by ~41% area expansion offset by -3% SSSG due to shift of Eid from 1QFY26 to 4QFY25 (11% normalised SSSG) as sales density was largely flat YoY at INR 7,968 (annualised). The company added 18 new stores in 1QFY26, taking the total store count to 232 (Retail area - 2.1mn sqft). Average store size of new stores increased by ~20% to 10.7k sqft in 1Q.
* Beat on margins despite weak SSSG: Reported EBITDA grew 39% YoY to INR 582mn (11% above estimates) as EBITDA margin expanded ~20bps YoY to 15.4% (JMFe: 13.9%) led by gross margin expansion of ~300 bps YoY to 35.9% (JMFe: 33.2%), offset by an increase in employee expense (~50bps YoY) and higher other expenses (~240bps YoY). The increase in gross margin is attributed to higher full price sales of 92% vs. 89% in 1QFY25, and 60bps YoY higher general merchandise sales. Pre-Ind AS EBITDA grew 14% YoY to INR 250mn (7% beat to JMFe) as margin contracted by ~130bps YoY to 6.6% due to ~160bps higher incremental rental expense. Adjusted profit declined 63% YoY to INR 28mn due to 67%/62% higher interest/ depreciation expense YoY and 8% YoY lower other income. The company’s insurance claim amounting to INR 43mn was settled for INR 35mn, leading to an exceptional loss of INR 8mn. Pre-Ind AS PAT grew 3% YoY to INR 97mn (10% beat to JMFe).
* Bill cuts remain strong; private label share increased ~820bps YoY: Bill cuts per store increased by ~4% to ~19k bills per store while the transaction value per bill declined ~5% to INR 900. ASP also fell by ~6% YoY to INR 251, resulting in ~1% YoY increase in items per basket to 3.6 items. Private label share increased by 820bps to 60.7%. Repeat purchases stood strong at 66%. Focus markets saw increased traction, up ~400bps YoY to 19.2% of total revenue.
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SEBI Registration Number is INM000010361
