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This Mid Cap Consumer Discretionary Stock Surged Over 150% In 1 Year: Should You Buy?

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Shoppers Stop has been one of India's leading retailers for over 30 years and is one of the pioneering online shopping destinations in the country. It is a small-cap company with a market capitalization of Rs 5,499.10 crores, and its shares have risen 152.91 per cent in a year, with a 52.74 per cent year-to-date (YTD) gain on the NSE. The stock has risen 33.33 per cent in the last six months and 7.52 per cent in the last month. The stock has climbed 1.32 per cent in the previous five trading days and is currently trading at a market price of Rs 500. ICICI Securities, a brokerage company, anticipates potential upside in the stock and has issued a buy call with a 12-month target price of Rs 595.

 

Q4FY22 results of Shoppers Stop (SSL) according to ICICI Securities

Q4FY22 results of Shoppers Stop (SSL) according to ICICI Securities

  • Covid-led disruptions in January-February and one-off expenses (~Rs 21 crore) led to a subdued performance in Q4FY22. The revenue recovery rate declined to 90% in Q4FY22 vs. 96% in Q3FY22.
  • On a favourable base, revenue grew 6% YoY to Rs 709.9 crore.
  • Increase in operating costs (owing to higher store additions) and one-off expenses (Rs 21 crore) led EBITDA margins to decline 343 bps YoY to 10.8% with absolute EBITDA declining 20% YoY to Rs 76.7 crore.
  • PBT losses were at Rs 49 crore vs. Rs 37.2 crore in Q4FY21.
Key investment rationale as per the brokerage
 

Key investment rationale as per the brokerage

  • We believe the new MD (former Westside CEO) would bring in his expertise in the private label brands domain and focus on enhancing the share of high margin private label brands (~14% of revenues).
  • It has embarked on a healthy store addition plan with the opening of 12 departmental stores and 15 beauty stores in FY23E. Majority of the store additions in Tier II/III cities. Capex for the same is expected to be Rs 150 crore, which will be funded mainly through internal accruals.
  • The management expects steady SSSG growth of 9-11% in the near term.
  • Key thrust on accelerating investments in omni-channel with long term target of channel contributing 20% of sales from current ~8%.
  • Higher focus on beauty segment (currently ~17% of revenues) through scaling up of its own private brand Arcelia.
Buy for a target price of Rs 595

Buy for a target price of Rs 595

The brokerage has claimed that "The stock price has underperformed the broader indices over the last five years on account of weak SSSG, muted store addition pace and lower share of private label brands. With the new management team in place, we expect a revival in SSL's revenue trajectory and margin profile. Reasonable valuations prompt us to remain positive on the stock and maintain BUY. We value SSL at Rs 595 i.e. 10.0x FY24E EV/EBITDA."

Re-imposition of lockdown can lower sales and delay in expansion of store network remains the key risk for the stock as per ICICI Securities.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Read more about: stocks to buy
Story first published: Monday, May 2, 2022, 9:26 [IST]
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