Neutral Shoppers Stop Ltd for the Target Rs.410 by Motilal Oswal Financial Services Ltd
Strong underlying momentum despite festive shift; outlook strengthens
* Shoppers Stop’s (SHOP) profitability continued to recover in 2QFY27, with pre-IND AS EBITDA up 56% YoY to INR430m and margins up ~90bp to 3.0%, aided by stable gross margins and strong cost control. PAT turned positive at INR31m (vs. a loss of INR201m YoY).
* Department store LFL growth stood at 2% (6.5% festive-adjusted), with premium mix at a record 73% (+390bp YoY), holding gross margins stable. Festive LFL is tracking at mid-teens. FY27 LFL guidance is maintained at mid-single-digit or higher, while store-opening guidance is raised to 12.
* INTUNE’s turnaround is holding up, with festive-adjusted LFL of 6% (vs. 10% in 1Q). Losses should narrow further in 2H on improved productivity and the expansion call to be taken after 3Q.
* GSSBB revenue grew 59% YoY to INR1.68b, while EBITDA nearly doubled to INR90m. New contracts carry similar or higher margins, with the network expanding to 11 boutiques and 614 POS (+42 QoQ).
* SHOP’s execution improves, but revenue growth is capped at ~10%, with GSSBB’s small base and 10-12 annual store additions limiting upside. Faster INTUNE expansion is the key re-rating trigger, potentially lifting growth.
* We revise estimates to build in 11% revenue CAGR over FY26-29E, aided by 6% area CAGR and productivity gains. Operating leverage should boost preInd AS EBITDA margins by 180bp, supporting 27% EBITDA CAGR.
* Until expansion gains visibility, we retain Neutral rating with a revised TP of INR410, based on 14x Dec’28E pre-Ind AS EV/EBITDA.
Balance sheet and cash flows
* Core WC stood at (-)16 days vs. (-)20 days in FY26, as inventory days rose by five QoQ to 157 (inventory up 8% to INR22.8b on festive stocking). This was partly offset by payable days rising to 182 (vs. 178 in FY26).
* OCF (ex-lease) stood at INR192m (vs. INR705m YoY) owing to WC outflow of INR544m (vs. inflow of INR272m in 1HFY26).
* With capex flat YoY at INR777m, FCFF outflow was INR585m vs. INR64m in 1HFY26.
* Net debt rose INR230m sequentially to INR1.8b (vs. INR1.5b at Mar’26), though the company remains on track to be debt-free by end-3QFY27.
Valuation and view
* SHOP’s repositioning toward premium retail continues to deliver, with premium mix at a record 73%. Medium-term growth visibility has improved, with department store opening guidance raised to ~12 (vs. 9-10 earlier) for the next 2-3 years.
* SHOP has brought forward its debt-free target to 3Q-end, to be met through internal accruals as WC optimization is largely complete. Once debt-free, accruals will fund department store expansion, INTUNE and GSSBB growth without incremental leverage. Repeating above
* SHOP’s execution has improved, but revenue growth remains capped at ~10%, with GSSBB’s small base and 10-12 annual store additions limiting upside. Faster INTUNE expansion is the key re-rating trigger and could drive growth.
* We revise estimates to build in ~11% revenue CAGR over FY26-29E, driven by 6% area CAGR and productivity gains. Operating leverage is expected to boost pre-Ind AS EBITDA margins by ~180bp, supporting 27% EBITDA CAGR over the period.
* Until expansion gains visibility, we retain Neutral rating with a revised TP of INR410, based on 14x Dec’28E pre-Ind AS EV/EBITDA.
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