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Slow Footfalls. Wait for FDI Partnership

Shoppers Stop has suffered from the slowdown in consumer purchases. But is it still a good buy?

The slowdown in consumer purchases has not spared Shoppers Stop. Same store sales grew at a meagre one per cent and volume de-growth of 4 per cent was illustrative of the tightening of discretionary spend, especially in the metros.

The company’s Ebitda declined by an alarming 47 per cent (y-o-y). This, inspite of 14 new stores being opened in the last 15 months. Aggressive expansion doesn’t seem to be paying off for now. Higher staff costs, higher electricity and rent costs all took their toll in pulling down Ebitda margins by a significant 3.34 per cent. Ebitda margins now stand at a mere 2.9 per cent. Higher depreciation (on newer stores) and higher interest costs saw PAT decline 92 per cent.

The company’s Hypercity saw sales growth of 15 per cent though it operated at a loss of Rs 9.27 crores (Ebitda). Analysts tracking the company opine that the company may shut down as many as five such stores before it comes into a position to report a breakeven in the Hypercity stores. Even that may be as much as three to four years away.

Though the second half is expected to see better performance because of the marriage season, higher operating costs is expected to continue to pin down margins and bottomlines.

The change in FDI policy notwithstanding, it is too early to speculate if and when a foreign company will tie up with Shoppers Stop. The stock trades at an expensive 59 times its earnings. The high valuations should cap any significant upsides from here in an environment that is yet to show any concrete signs of recovery.