Structural shifts (demonetisation and GST) in India’s retail space have seen Shoppers Stop (SSL) realign its business strategy wherein: 1) To capitalise on the digital wave, SSL has announced an exclusive tie up with Amazon India, which attracts 600mn eyeballs, a big potential customer base for SSL; 2) This partnership will see Amazon leverage SSL’s physical space, while SSL will utilise Amazon’s widespread digital presence to create a superlative retail omni channel; and 3) SSL has raised Rs 1,793 million by divesting 5% stake to Amazon India and will use the sale proceeds to pare debt. Amazon India & Shoppers Stop tie up and the exit of Aditya Birla Group from its online platform (abof closed) shows huge relevance of physical retailing in India. Maintain ‘buy’.
The SSL-Amazon India tie up, in our view, places SSL at vantage point to reap benefits from its partner’s enviable digital presence wherein: 1)SSL management expects Rs 2 billion sales from digital post the tie up with Amazon and 6·8% EBITDA margin in FY19; 2) We expect SSL to leverage Amazon India to increase its private label contribution (16.4% in Q1FY18); and 3) SSL has allotted 4.39 million shares (divested 5% stake) to Amazon India at Rs 407.78/share aggregating to Rs 1,793 million.
Having Amazon India as an investee will boost confidence of SSL’s investors. In the past two years, SSL has been investing in it omni venture. We believe this exclusive tie·up will lend the required fillip to its omni platform. Amazon India attracts ~600mn hits, which will be a potential customer base for SSL.
The partnership will leverage SSl’s brand assortment and Amazon India reach to create a superlative omni channel retail experience for consumers across the country. Moreover, SSL’s website, shoppersstop.com, wilsl continue as per the initial plan.