Shoppers Stop – Lackluster Quarter

Shopper’s Stop (SSL) has reported revenue growth of 38% at Rs2.77bn, EBITDA of Rs134m and PAT of Rs2.3m (decline from Rs80m in Q2FY07). Growth in the business is driven by 200,000 sq. ft. of retail space added since April 2007 and 19% growth in like to like stores. New store addition, addition of new formats [Arelia and Clinque] and service tax on rentals have dragged the profitability in the business with EBITDA margins dipping from 8% in Q2FY07 to 4.8% in Q2FY08.

SSL has added less than 400,000 sq. ft. of retail space in the last two years, as against Pantaloon Retail, which has added 4m sq. ft. SSL has lined up plans to add 8-10 Shopper’s Stop annually over the next four years and also reach 35 Hypercity outlets by 2011, execution of the same would be the key monitorable.

UBS Investment Research maintains a NEUTRAL rating with price target of Rs550 is based on 10.9% WACC, with a 5.5% terminal growth assumption. SSKI maintains a NEUTRAL rating with a target price of Rs 516. Macquaire research seems to be more optimistic on the company and maintains a BUY with a price target of Rs 650 [Seems little bit high to us compared to its performance]