Maintaining Ebitda margins in spite of highest new store addition in the last one year in the departmental store format was a key positive. Key negatives were moderation in like-to-like growth and high losses in Hypercity.
Our earnings estimates for FY14 & FY15 stand revised downwards factoring higher Hypercity losses. As expected, like-to-like growth has moderated to mid-single digits as the high base and the weak demand environment have taken a toll.
Retailers continue to struggle with a volatile environment, continued increase in overheads and rising interest costs. Shoppers Stop is no different with departmental store profit margins still 60% of optimum levels achieved in FY11. Further, Hypercity losses continue unabated.
We believe that the Shoppers Stops departmental store format is the most efficient in India and factor a sharp improvement in profitability in both formats over the next two years. However, at 34x consolidated FY16 earnings, we believe that the business recovery is already in the price. Further, an upside trigger on FDI in multi-brand retail is unlikely in the policys current form. Maintain underperform.