INTUNE Brand Expansion And Premiumization Strategy Will Broaden Future Customer Base

Key Takeaways

• The focus on premium brands and beauty segments is likely to boost revenue, transaction values, and profit margins.
  
• Strategic expansions, renovations, and digital innovations are set to enhance revenue growth, online sales, and market presence.
  
• Challenges in maintaining profitable operations and a focus on premiumization may threaten revenue growth and customer base amid market constraints and external delays.

Catalysts

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

• The premiumization strategy has shown consistent progress, increasing its share of total revenue from 55% to 64%. This focus on attracting higher-spending customers through partnerships with premium brands is likely to boost average transaction value (ATV) and overall revenue.
  
• The beauty segment, particularly through the 100% subsidiary, Global SS Beauty, has nearly doubled sales within a year. Expansion into high-end beauty stores and an innovative product lineup, including new brand launches, suggest a potential increase in revenue and improved net margins due to higher-margin beauty products.
  
• Significant store renovations, like the state-of-the-art innovation of the Malad store, are resulting in higher productivity. Renovated stores are driving substantial increases in customer spend per square foot (SPS), which will likely enhance revenue and earnings growth.
  
• A robust digital strategy with new platforms and same-day delivery initiatives is expected to enhance the omnichannel customer journey. Improvements in digital operations and customer engagement could lead to higher online sales and better overall revenue.
  
• Expansion plans, particularly for the INTUNE brand, with a target of opening 90 to 100 stores next year, indicate a significant growth in physical presence. This store expansion strategy is set to increase market share, drive higher sales volume, and improve scale efficiencies, potentially boosting revenue and net margins.

Shoppers Stop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shoppers Stop's revenue will grow by 12.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.7% today to 5.6% in 3 years time.
• Analysts expect earnings to reach ₹3.7 billion (and earnings per share of ₹22.72) by about March 2028, up from ₹321.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.8x on those 2028 earnings, down from 171.3x today. This future PE is greater than the current PE for the IN Multiline Retail industry at 23.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.69%, as per the Simply Wall St company report.

Shoppers Stop Future Earnings Per Share Growth

Risks

• The recent closures of several departmental stores, particularly those on high streets, indicate challenges in maintaining profitable operations, which may pose ongoing risks to revenue stability and growth.
  
• Rationalizing private brands to enhance profitability suggests potential challenges in product management and competition, which could affect net margins if not accurately strategized.
  
• Persistent inflation and lower discretionary spending impacting the broader retail landscape may continue to constrain Shoppers Stop's revenue growth, as indicated by the current market conditions.
  
• The strategic focus on premiumization, while effective in raising average transaction values, might alienate cost-sensitive segments, potentially reducing overall customer base and affecting revenues.
  
• The expansion of the INTUNE brand shows promising growth, but the delay in store openings due to external factors (e.g., regulatory restrictions) could impede expected revenue inflows and earnings.

Valuation

• The analysts have a consensus price target of ₹768.444 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 ₹598.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹65.2 billion, earnings will come to ₹3.7 billion, and it would be trading on a PE ratio of 35.8x, assuming you use a discount rate of 15.7%.
• Given the current share price of ₹499.5, the analyst price target of ₹768.44 is 35.0% 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.