We recently hosted Shoppers Stop (SSL). Key takeaways: (i) Management expects improved traction in private labels with its revenue contribution going up to 15–20% over the next three years; (ii) New management team is now in place with their KPIs linked to sales and margins; and (iii) Beauty portfolio, wherein SSL has a pole position and is clocking double-digit RoCE, is being scaled up. All in all, from a financial standpoint, SSL expects to achieve high single-digit SSSG, low double-digit revenue growth and margin expansion of 100bps each year over the next three years. Maintain Buy.
SSL’s journey ahead in numbers: While store openings have been slow over the past two years, the company now plans to open six–eight stores p.a. over the next three years. This, coupled with SSSG of high single digits will lead to an overall revenue growth of low double digit. Strong revenue growth will also be led by an uptick in contribution from private label and a bigger share of the beauty portfolio (currently ~14% of revenue).
Outlook and valuation: Headed in right direction: We believe SSL is a turnaround candidate given: (i) the new management team is in place; (ii) the steadily rising salience of private labels; and (iii) its net cash position. We retain 15x, 12 month forward EV/Ebitda, which yields a target price of `636. The stock is trading at 11.3x FY20e EV/Ebitda. Maintain ‘BUY/SP’.
