Premium Marketing And Intune Ventures Will Create A Bright Future

Key Takeaways

• Premiumization and targeted marketing campaigns are driving revenue growth as consumers prioritize quality, enhancing Shoppers Stop's market positioning.
  
• Strategic cost optimization and efficient capital management are expected to improve margins and earnings stability over time.
  
• Shoppers Stop faces profitability challenges from high discounting, competitive pressures, increased borrowing, and economic uncertainties, impacting margins and growth across business segments.

Catalysts

Engages in the retail of various household and consumer products through retail and departmental stores in India.

• The ongoing premiumization trend at Shoppers Stop is expected to drive higher Average Transaction Value (ATV) and Average Selling Price (ASP), which can enhance revenue growth as consumers increasingly prioritize quality over cost.
  
• The company's investment in marketing campaigns, such as India Weds Shoppers Stop and Gifts of Love, is aimed at positioning the brand as a one-stop destination for premium shopping experiences, likely boosting customer foot traffic and, subsequently, revenue.
  
• The expansion of the Intune and Global SSBeauty businesses, despite initial challenges, holds potential for future revenue growth, particularly as these segments mature and increase their market presence.
  
• A strategic focus on optimizing costs and leveraging efficiencies is expected to positively impact net margins, especially as the company rationalizes costs in its Departmental stores and benefits from economies of scale in new ventures.
  
• Efforts to reduce working capital and fund future CapEx through internal accrual, along with a focus on inventory management, are likely to improve the debt position and thus enhance earnings stability in the long term.

Shoppers Stop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shoppers Stop's revenue will grow by 13.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 6.1% in 3 years time.
• Analysts expect earnings to reach ₹4.1 billion (and earnings per share of ₹20.84) by about May 2028, up from ₹108.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, down from 515.3x today. This future PE is greater than the current PE for the IN Multiline Retail industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.97%, as per the Simply Wall St company report.

Shoppers Stop Future Earnings Per Share Growth

Risks

• Shoppers Stop's Intune business faced tough conditions, with high discounting impacting profitability, potential indication of challenges in maintaining margins and consistent revenue growth for the new business segment.
  
• The Beauty segment saw a marginal decline, the first in 8 quarters, due to aggressive market offers on value products, highlighting the risk of competitive pressure impacting sales and profitability.
  
• The company's borrowing increased by ₹137 crores, primarily for new business working capital, indicating a potential risk of financial strain and pressure on net margins due to higher interest expenses.
  
• Despite opening new stores, customer entries experienced declines earlier in the year, indicating potential challenges in driving store traffic and sales revenue.
  
• Economic uncertainties and external factors, such as the largely organic fashion business being unorganized, pose a potential risk to consistent demand and revenue generation across the company's business segments.

Valuation

• The analysts have a consensus price target of ₹744.556 for Shoppers Stop based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1016.0, and the most bearish reporting a price target of just ₹535.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹68.4 billion, earnings will come to ₹4.1 billion, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 17.0%.
  
• Given the current share price of ₹509.85, the analyst price target of ₹744.56 is 31.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.