india morning bell - rathionline.com bell.pdf5 august 2014 india morning bell anand rathi research...

Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

India I Equities Country

Daily

5 August 2014

India Morning Bell

All the latest research and data

Titan Industries – Tackling regulatory hurdles well; Buy. In 1QFY15, revenue declined 7% yoy, to `28.9bn, and was lower than our expectations, due to high base on the jewellery division last year. Watches division’s posted a strong growth of 10% yoy, on the back of 9% volume growth, mainly driven by promotional schemes. We believe, benefit of international hedging, improvement in regulatory environment with focus on higher SSS growth and better availability of gold will drive growth for the company. We value the stock at one-year forward at 29x PE on FY16 EPS of `12.7and target price of `375.

Shoppers Stop – On the road to recovery; Hold. Net sales (standalone) came in at 13.6% yoy, to `6bn, vs our expectation of `6.3bn. Like-to-like growth came in lower at 3.7% yoy as sales growth of the mature stores (greater than 5%) was (-1%) yoy as some stores were closed due to renovation. We believe the standalone business is improving. Margin expansion, with an increase in private-label sales and cost controls, would be a key growth driver. However, since Hypercity is likely to remain loss-making until FY16, we maintain Hold on the stock. We value it on SOTP, at `373, using the PE multiple for the standalone business and m.cap/sales for Hypercity and Crossword.

Sensex: 25723

Nifty: 7684

India: Gap increases as exports fall more than imports

Source: Government of India

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Markets 4 Aug ’14 1 Day YTD Sensex 25723 1.0% 21.5%Nifty 7684 1.1% 21.9%Dow Jones 16569 0.5% 0.0%S & P 500 1939 0.7% 4.9%FTSE 6678 0.0% -1.1%Nikkei* 15471 0.0% -5.0%Hang Seng* 24594 -0.1% 5.5%

Volumes (US$m) 4 Aug ’14 1 Day Avg '14Cash BSE 399 -27.4% 514Cash NSE 2,478 -19.1% 2,585Derivatives (NSE) 21,032 -28.3% 29,210

Flows (US$m) 4 Aug ’14* MTD YTD FII – Cash Buy 689 689 84,842Sell 628 628 73,891Net 61 61 11,811FII - Derivatives Buy 2,487 2,487 486,418Sell 2,347 2,347 484,952Net 140 140 773DII – Cash Buy 227 227 15,053Sell 268 268 16,126Net -41 -41 -943

Others 4 Aug ’14 1 Day YTD Oil Brent (US$/bbl)* 105.4 0.0% -2.3%Gold (US$/oz)* 1,288.3 0.0% 6.9%Steel (US$/MT) 600.0 0.0% 2.6%`/US$ 60.94 0.0% 1.4%US$/Euro* 1.34 0.0% 2.4%Yen/US$* 102.59 0.0% 2.7%Call Rate 7.00% -100.bps -175.bps10-year G-Secs 8.51% -2.2bps -32.bpsEMBI spreads 299.06 1.7bps -35.2bps@7:30am *Provisional Source: BSE, Bloomberg

5 August 2014 India Morning Bell

Anand Rathi Research India Equities

Market Data

Price Performance Price Performance Price Performance Top-5 gainers Top-5 gainers Top-5 gainersCompany CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%)

CROMPTON GREAVES 211 22.6 6.2 JAYPEE INFRATECH 37 30.4 13.8 HITACHI HOME & L 359 38.4 32.6

ADANI PORTS AND 288 15.9 24.8 BF UTILITIES LTD 770 28.1 7.7 TATA SPONGE IRON 841 36.0 33.8

BALKRISHNA INDS 811 15.7 11.2 TRINITY TRADELIN 85 17.6 1.3 AHLUWALIA CONTRA 135 35.8 29.0

TVS MOTOR CO LTD 171 14.9 20.3 SADBHAV ENGINEER 220 17.2 10.1 SKIL INFRASTRUCT 46 27.1 (13.5)

MPHASIS LTD 458 12.9 1.9 RAYMOND LTD 462 16.6 26.9 MARKSANS PHARMA 33 22.5 8.5

Top-5 losers Top-5 losers Top-5 losersCompany CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%)

SANOFI INDIA LTD 2923 (10.2) (7.7) NIIT TECH LTD 385 (19.0) (15.4) JACKSON INVESTME 259 (16.3) (17.0)

INDIAN HOTELS CO 94 (9.8) (7.5) ZYDUS WELLNESS 586 (10.3) 3.2 SWADESHI INDS 57 (11.8) (3.4)

PIRAMAL ENTERPRI 642 (7.8) (11.9) SOBHA DEVELOPERS 439 (6.2) (16.6) ELECTROSTEEL STE 6 (10.2) (14.9)

REC LIMITED 314 (4.7) (10.4) MCLEOD RUSSEL 282 (6.1) (5.2) UNNO INDUS LTD 18 (9.8) (34.8)

CADILA HEALTHCAR 1076 (4.4) 8.2 ECLERX SERVICES 1172 (5.1) 1.5 VST TILLERS TRAC 1719 (7.2) (5.6)

Volume Volume VolumeVolume spurts Volume spurts Volume spurtsCompany CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%)

MARICO LTD 237 1,285,571 194.4 REPCO HOME FINAN 468 2,461,381 241.6 NEWTIME INFRASTR 45 21,219 296.5

MAHINDRA & MAHIN 1,184 4,155,305 131.9 WESTLIFE DEVELOP 348 10,216 229.4 SEQUENT SCIENTIF 382 277,616 267.4

CROMPTON GREAVES 211 12,838,684 91.7 NIIT TECH LTD 385 944,540 202.3 TATA SPONGE IRON 841 1,808,098 171.7

BALKRISHNA INDS 811 168,279 84.3 BF UTILITIES LTD 770 692,398 162.1 TINPLATE CO LTD 84 1,843,041 164.1

SANOFI INDIA LTD 2,923 18,679 78.4 TTK PRESTIGE LTD 3,900 65,708 142.0 MATRA KAUSHAL EN 52 91,568 134.1

Technicals Technicals Technicals Above 200 DMA Above 200 DMA Above 200 DMACompany CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%)

IRB INFRASTRUCTU 267 123 118.3 SUNDARAM CLAYTON 1,365 571 140.7 RAJLAXMI INDUS 231 61 289.6

TVS MOTOR CO LTD 171 91 88.9 # NATIONAL BUILDIN 455 198 132.5 AHLUWALIA CONTRA 135 50 172.9 BALKRISHNA INDS 811 446 82.9 # CCL INTERNATIONA 427 187 131.5 KITEX GARMENTS 281 124 128.8

BHARAT FORGE CO 708 407 74.6 # MOTILAL OSWAL 246 115 115.7 SANGHVI MOVERS 165 74 125.6

SUZLON ENERGY 25 15 71.1 HINDUSTAN CONST 41.0 21.0 98.0 DYNAMATIC TECH 1,774 801 124.4

Below 200 DMA Below 200 DMA Below 200 DMACompany CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%)

BHUSHAN STEEL 395 454 (13.1) PINE ANIMATION L 86 94 (8.4) SKIL INFRASTRUCT 46 73 (38.1)

UNITED SPIRITS 2,385 2,595 (8.1) GODFREY PHILLIPS 2,701 2,927 (8.0) UNNO INDUS LTD 18 26 (28.0)

UNITED BREWERIES 724 786 (8.1) TRINITY TRADELIN 85 91 (6.7) RADICO KHAITAN L 102 133 (23.3)

IDEA CELLULAR 138 149 (7.4) JET AIRWAYS IND 254 270 (6.1) JAYBHARAT TEXTIL 22 28 (22.7)

M&M FIN SERVICES 256 274 (6.4) GS GOLD BEES 2,596 2,744 (5.5) GULF OIL CORP 173 199 (17.3)

Small Caps(US$100m-250m)

Large Caps(>US$1bn)

Mid Caps(US$250m-1bn)

Source: Bloomberg


India I Equities Retail

Result Update

`

Rating: Buy Target Price: `375 Share Price: `337

Key data TTAN IN / TITN.BO52-week high / low `362 / `203Sensex / Nifty 25723 / 76843-m average volume US$10.2m Market cap `289bn / US$4.7bnShares outstanding 887.8

Shareholding pattern (%) Jun ’14 Mar ’13 Dec ’13

Promoters 53.05 53.05 53.05

- of which, Pledged - - -

Free Float 46.95 46.95 46.95

- Foreign Institutions 21.51 21.69 21.58

- Domestic Institutions 2.84 2.41 1.97

- Public 22.60 23.4 22.88

5 August 2014

Titan Industries

Tackling regulatory hurdles well; Buy

Key takeaways

Revenue dips on higher base. In 1QFY15, revenue declined 7% yoy, to `28.9bn, and was lower than our expectations, due to high base on the jewellery division last year. Watches division’s posted a strong growth of 10% yoy, on the back of 9% volume growth, mainly driven by promotional schemes. SSS for World of Titan was just 2%, while it improved dramatically for Helios at 20% yoy growth. Jewellery contributed 80% to revenues and declined 11% yoy, with grammage down 24% yoy (high base).

Suspension of Golden harvest scheme. In line with the regulations of the new company’s act, the company has suspended the ‘Golden harvest scheme’. It will launch a new scheme in compliant with the current law by Oct’14.

EBITDA margin improves yoy. EBITDA margin for the company improved 160bps yoy, to 9.5%, in line with our expectation. EBIT margin in jewellery is 9.4% in 1QFY15 against 8.8% in 1QFY14; EBIT margin in the watches division has been improving from the past four quarters from 10.5% in 1QFY14 to 13% 1QFY15 on the back of higher volumes.

Store additions. In 1Q, the company added three stores of Tanishq with the total area up from 0.639 msf to 0.674msf. For FY15x, it targets to add another 0.1msf in Tanishq. Management expects debt level to remain at ~`8bn.

Our take. We believe, benefit of international hedging, improvement in regulatory environment with focus on higher SSS growth and better availability of gold will drive growth for the company. We value the stock at one-year forward at 29x PE on FY16 EPS of `12.7and target price of `375. Risks. Regulatory hurdles and volatility in gold prices.

Financials (YE Mar) FY15e FY16e

Sales (Rsm) 132,771 156,278

Net profit (Rsm) 9,315 11,470

EPS (Rs)* 10 13

Growth (%) 25.7 23.1

PE (x) 31.1 25.2

PBV (x) 0.9 0.7

RoE (%) 32.4 31.1

RoCE (%) 33.8 35.1

Dividend yield (%) 0.7 0.7

Net gearing (%) (9.3) (15.8)

Source: Anand Rathi Research

Quarterly results (YE Mar) 1QFY14 1QFY15 % yoy FY13 FY14 % yoy

Sales (`m) 31,077 28,914 (7.0) 101,127 109,158 7.9

EBITDA (`m) 2,449 2,743 12.0 10,106 10,484 3.7

EBITDA margin (%) 7.9 9.5 161bps 10.0 9.6 (39)bps

Interest (`m) 170 350 105.3 506 871 72.0

Depreciation (`m) 146 243 66.6 545 656 20.4

Other income(`m) 382 254 (33.6) 1,008 1,202 19.3

PBT (`m) 2,515 2,404 (4.4) 10,063 10,159 1.0

Tax (`m) 704 661 (6.1) 2,854 2,630 (7.8)

Tax rate (%) 28.0 27.5 (50)bps 28.4 25.9 (247)bps

PAT (`m) 1,825 1,772 (2.9) 7,252 7,411 2.2

Source: Company

Change in Estimates Target Reco

Estimates revision (%) FY15e FY16e

Sales 1.5 1.6 EBITDA 1.7 1.8 PAT 1.7 2.1

5 August 2014 Titan Industries - Tackling regulatory hurdles well; Buy

Anand Rathi Research 2

Quick Glance – Financials and ValuationsFig 1 – Income statement (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Net revenues 87,444 101,127 109,158 132,771 156,278 Revenue growth (%) 34.1 15.6 7.9 21.6 17.7 - Op. expenses 80,054 91,021 98,674 119,760 140,416 EBIDTA 7,390 10,106 10,484 13,011 15,862 EBITDA margins (%) 8.5 10.0 9.6 9.8 10.1 - Interest 437 506 871 800 700 - Depreciation 449 545 656 750 850 + Other income 1,881 1,008 1,202 1,300 1,400 PBT 8,385 10,063 10,159 12,761 15,712 Income taxes 2389 2854 2630 3445 4242Extra-ordinary items - - - - -Reported net profit 6,002 7,252 7,411 9,315 11,470 Adjusted net profit 6,002 7,252 7,411 9,315 11,470 PAT growth (%) 10.8 20.8 2.2 25.7 23.1 Adj. FDEPS (`/share) 6.8 8.2 8.3 10.5 12.9 Adj. FDEPS growth (%) (44.6) 20.8 2.2 25.7 23.1 Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

PAT 6,002 7,252 7,411 9,315 11,470 Non Cash items 396 502 643 750 850 Cash profit 6,398 7,754 8,054 10,065 12,320 Increase/(Dec) in WC 4,508 2,296 14,648 3,607 3,910 Operating cash flow 1,889 5,458 (6,594) 6,458 8,410 Capex 1,388 1,512 2,044 2,000 2,500 Free cash flow 502 3,946 (8,638) 4,458 5,910 Dividend 1,282 1,796 2,169 2,272 2,375 Equity raised 844 - 0 - -Debt raised (36) (59) 8,063 (1,000) (2,000)Investments 69 25 81 - -Miscellaneous items 1,319 306 (348) - -Net cash flow (1,360) 1,760 (2,476) 1,186 1,535 Opening cash 10,965 9,605 11,366 8,889 10,076 Closing cash 9,605 11,366 8,889 10,076 11,611 Source: Company, Anand Rathi Research

Fig 5 – PE band

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Source: Bloomberg, Anand Rathi Research

Fig 2 – Balance sheet (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Share capital 444 888 888 888 888 Reserves & surplus 13,611 18,761 24,352 31,395 40,489 Net worth 14,499 19,649 25,240 32,283 41,377 Total debt 59 - 8,063 7,063 5,063 Minority interest - - - - -Def. tax liab. (net) (38) (80) (94) (94) (94)Capital employed 14,520 19,568 33,209 39,252 46,346 Net fixed assets 3,936 4,903 6,291 7,541 9,191 Investments 160 185 266 266 266 - of which, Liquid Working capital 819 3,115 17,763 21,369 25,279 Cash 9,605 11,365 8,889 10,076 11,611 Capital deployed 14,520 19,568 33,209 39,252 46,346 Net debt/equity (%) (0.7) (0.6) (0.0) (0.1) (0.2)W C turn (days) (6) 7 35 54 54 Book value (`/sh) 163 221 284 364 466 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `326 Year-end: Mar FY12 FY13 FY14 FY15e FY16e

P/E (x) 48.2 39.9 39.1 31.1 25.2 Cash P/E (x) 45.2 37.3 35.9 28.8 23.5 EV/EBITDA (x) 37.9 27.5 27.5 22.0 17.8 EV/sales (x) 3.2 2.7 2.6 2.2 1.8 P/B (x) 2.0 1.5 1.1 0.9 0.7 RoE (%) 48.5 42.5 33.0 32.4 31.1 RoCE (%) 55.8 56.1 37.2 33.8 35.1 Dividend yield (%) 0.4 0.5 0.6 0.7 0.7 Dividend Payout(%) 18.4 21.3 25.2 21.0 17.8 Debt to equity (x) (0.7) (0.6) (0.0) (0.1) (0.2)Debtor days 7 6 5 5 5 Inventory days 120 133 129 120 115 Payables days 44 53 51 47 42 Working capital days (6) 7 35 54 54 Fixed asset T/O (x) 25.2 22.9 19.5 19.2 18.7 Source: Company, Anand Rathi Research

Fig 6 – 1QFY15 revenue break-up

Un allocated1%

Others4%

Watches15%

Jewellery 76%

Source: Company



Result highlights Fig 7 – Estimates vs Actual Quarterly results (YE Mar) 1QFY15 1QFY15e % var 1QFY14 % yoy 4QFY14 % qoq

EBITDA (`m) 2743 2884 (4.9) 2449 12.0 2966 (7.5)

EBITDA margin (%) 9.5 9.5 (1)bps 7.9 161bps 10.6 (109)bps

Interest (`m) 350 230 52.0 170 105.3 227 53.8

Depreciation (`m) 243 210 15.9 146 66.6 204 19.1

Other income(`m) 254 275 (7.6) 382 (33.6) 255 (0.4)

PBT (`m) 2404 3052 (21.2) 2515 (4.4) 2789 (13.8)

Tax (`m) 661 702 (5.8) 704 (6.1) 566 16.8

Tax rate (%) 27.5 23.0 450bps 28.0 (50)bps 20.3 720bps

PAT (`m) 1772 2350 (24.6) 1825 (2.9) 2064 (14.1)

Source: Company, Anand Rathi Research

Fig 8 – Sales & sales growth: Jewellery

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Fig 10 – Sales & sales growth: Watches

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Fig 14 – OPM & NPM

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Valuations

We believe, benefit of international hedging, improvement in regulatory environment with focus on higher SSS growth and better availability of gold will drive growth for the company. We value the stock at one-year forward at 29x PE on FY16 EPS of `12.7and target price of `375.

Fig 15 – 12-month forward PE: Standard deviation and mean

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Source: Anand Rathi Research

Risks

Regulatory hurdles

Volatility in gold prices

Fig 12 – No. of stores: Jewellery

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World of Titans Fasttrack Outlets Helios Outlets

(no's)


Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 4 August 2014)

Titan

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Date Rating TP (`)

Share Price (`)

1 15-Jan-13 Buy 325 272 2 1-Nov-13 Buy 316 266 3 30-Jan-14 Buy 270 215 4 9-Apr-14 Buy 316 262 5 8-May-14 Buy 342 272

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.

Anand Rathi Ratings Definitions

Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below:

Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5%

Anand Rathi Research Ratings Distribution (as of 4 August 2014) Buy Hold Sell Anand Rathi Research stock coverage (196) 60% 27% 13%

% who are investment banking clients 4% 0% 0%

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India I Equities

Retail

Result Update `

Rating: Hold Target Price: `373 Share Price: `392

Key data SHOP IN / SHOP.BO52-week high / low `459 / `318Sensex / Nifty 25723/7684

3-m average volume US$1.6m

Market cap `32.2bn/US$530mShares outstanding 83m

Shareholding pattern (%) Jun ’15 Mar ’14 Dec ’13

Promoters 67.29 67.33 67.45 - of which, Pledged - - -Free Float 32.71 32.67 32.55 - Foreign Institutions 2.88 2.81 2.77 - Domestic Institutions 14.87 15.13 15.12 - Public 14.96 14.73 14.67

5 August 2014

Shoppers Stop

On the road to recovery; Hold

Key takeaways

Revenue growth below expected. Net sales (standalone) came in at 13.6% yoy, to `6bn, vs our expectation of `6.3bn. Like-to-like growth came in lower at 3.7% yoy as sales growth of the mature stores (greater than 5%) was (-1%) yoy as some stores were closed due to renovation. Consignment/SOR revenue came at 54% (57.9% in 4QFY14), bought-out items 43.5% and concession sales 2.6%. First Citizen’s share of revenue continues to remain ~72% (72% in 4QFY14 and 73% in 1QFY14), with 3.4m members.

EBITDA margin improves yoy. EBITDA margin improved 75bps to 3.8% in 1QFY15 vs 3.1% in 1QFY14 due to cost optimization measures. Private label sales grew 9% yoy, but proportion reduced to 17.1% vs 17.4% yoy. Mgmt expects EBITDA margin to expand to 8%+ as store expansion slows.

Hypercity performance lacklustre. Revenue from Hypercity (51% subsidiary) rose 7.9%, with comparable sales declining 5% due to a cut in store area. Gross margins have improved 130bps yoy, to 21%, mainly due to downsizing of stores and a greater share of fashion mix to 15% vs 11% last quarter. However, it posted a loss of `184m during the quarter vs `247m yoy.

New store additions. The area increased from 5.41m sq.ft. in 4QFY14 to 5.5m sq.ft. in 1QFY15 with the addition of two Shoppers Stop department stores (to 69 now), two MAC stores and two Clinique stores.

Our take. We believe the standalone business is improving. Margin expansion, with an increase in private-label sales and cost controls, would be a key growth driver. However, since Hypercity is likely to remain loss-making until FY16, we maintain Hold on the stock. We value it on SOTP, at `373, using the PE multiple for the standalone business and m.cap/sales for Hypercity and Crossword. Risk. Slower growth in the economy.

Financials (YE Mar) * FY15e FY16e

Sales (`m) 42,800 49,280Net profit (`m) 586 821 EPS (`) 7.0 9.9 Growth (%) (871) 40 PE (x) 55.7 39.7 PBV (x) 3.0 2.6 RoE (%) 4.1 9.0 RoCE (%) 4.6 9.0 Dividend yield (%) 0.2 0.2 Net Debt Equity 95.7 73.3 Source: Anand Rathi Research *Consolidated

Quarterly results (YE Mar) 1QFY14 1QFY15 % yoy FY13 FY14 % yoy

Sales (`m) 5,300 6,021 13.6 22,261 26,807 20.4

EBITDA (`m) 163 230 41.3 983 1207 22.8

EBITDA margin (%) 3.1 3.8 75bps 4.4 4.5 9bps

Interest (`m) 98 131 32.8 319 419 31.4

Depreciation (`m) 133 199 49.6 507 618 21.7

Other income(`m) 103 112 9.1 453 463 2.2

PBT (`m) 34 13 (62.9) 610 634 3.9

Tax (`m) 11 5 (53.3) 211 257 21.9

Tax rate (%) 40.1 40.6 47bps 34.6 40.6 598bps PAT (`m) 23 8 (67.5) 399 377 (5.6)

Source: Company Note: Standalone numbers

Estimates revision (%) FY15e FY16e

Sales (1.3) (1.0)EBITDA (3.2) (3.2)PAT (7.3) (5.5)

Change in Estimates Target Reco

5 August 2014 Shoppers Stop – On the road to recovery; Hold


Quick Glance – Financials and ValuationsFig 1 – Income statement (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Net revenues 27,372 31,190 37,060 42,800 49,280 Revenue growth (%) 28.1 14.0 18.8 15.5 15.1 - Oper. expenses 26,838 30,795 36,377 41,330 47,213 EBIDTA 534 396 683 1,470 2,067 EBITDA margins (%) 1.9 1.3 1.8 3.4 4.2 - Interest 422 547 653 750 825 - Depreciation 609 791 981 1,000 1,050 + Other income 579 634 711 600 600 PBT 82 (315) (246) 320 792 Income taxes 322 228 257 109 269Reported net profit (240) (543) (503) 211 523 Minority Interest 434 430 420 375 298 PAT after MI 194 (106) (76) 586 821 PAT growth (%) (55.0) (154.3) (27.9) NA 40.1 Adj. FDEPS (`/sh) 2.4 (1.3) (0.9) 7.0 9.9 Adj. FDEPS growth (%) (55.2) (154.1) (28.1) NA 40.1 Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

PAT 194 (106) (76) 586 821 Non-cash items 527 525 1,018 1,000 1,050 Cash profit 722 419 942 1,586 1,871 Incr./(Decr.) in WC 701 411 (621) 719 133 Operating cash-flow 21 8 1,563 867 1,739 Capex 1,680 722 2,216 1,200 1,300 Free cash-flow (1,659) (715) (653) (333) 439 Dividend 72 73 73 73 73 Equity raised 29 27 45 - (0)Debt raised 1,653 872 723 - -Investments 0 - 0 - -Miscellaneous items - - - - -Net cash-flow (32) 118 11 (31) 664Opening cash 182 150 268 278 247 Closing cash 150 268 279 247 911 Source: Company, Anand Rathi Research

Fig 5 – Merchandise buying model (1QFY15)


Fig 2 – Balance sheet (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Share capital 413 415 416 416 416 Reserves & surplus 4,748 4,594 4,489 5,002 5,750 Net worth 5,160 5,009 4,905 5,418 6,166 Total debt 3,835 4,707 5,430 5,430 5,430 Minority interest 39 46 15 389 688 Def. tax liab. (net) 2 63 100 100 100 Capital employed 9,037 9,824 10,449 11,337 12,384 Net fixed assets 7,469 7,727 8,963 9,163 9,413 Investments 0 0 0 0 0 - of which, Liquid 0 0 0 0 0 Working capital 1,418 1,829 1,208 1,927 2,060 Cash 150 268 279 247 911 Capital deployed 9,037 9,824 10,449 11,337 12,384 Net debt/equity (%) 0.7 0.9 1.1 1.0 0.7 W C turn (days) 14 19 15 13 15 Book value (`/sh) 125 121 118 130 148 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `392 Year-end: Mar FY12 FY13 FY14 FY15e FY16e

P/E (x) 166.6 NA NA 55.7 39.7 Cash P/E (x) 87.7 127.4 67.4 26.9 20.7 EV/EBITDA (x) 67.6 93.4 54.0 25.7 18.0 EV/sales (x) 1.3 1.2 1.0 0.9 0.8 P/B (x) 3.1 3.2 3.3 3.0 2.6 RoE (%) (4.7) (10.5) (10.1) 4.1 9.0 RoCE (%) (0.9) (4.2) (3.1) 4.6 9.0 Dividend yield (%) 0.2 0.2 0.2 0.2 0.2 Dividend payout (%) (25.8) (11.5) (12.4) 29.5 11.9 Net Debt to equity (x) 0.7 0.9 0.9 1.0 0.7 Debtor days 3 4 4 4 5 Inventory days 44 43 43 43 43 Payables days 44 45 45 46 46 Working capital days 14 19 15 13 15 Fixed asset T/O (x) 3.3 3.2 3.3 3.4 3.5 Source: Company, Anand Rathi Research

Fig 6 – Revenue break-up (standalone)

Source: Company



Result Highlights Fig 7 – Estimates vs Actual Quarterly results (YE Mar) 1QFY15e 1QFY15 % var 1QFY14 % yoy 4QFY14 % qoq

Sales (`m) 6,326 6,021 (4.8) 5,300 13.6 7,279 (17.3)

EBITDA (`m) 253 230 (9.2) 163 41.3 284 (19.0)

EBITDA margin (%) 4.0 3.8 (18bps) 3.1 75bps 3.9 (8bp)

Interest (`m) 110 131 18.7 98 32.8 108 21.0

Depreciation (`m) 180 199 10.3 133 49.6 178 11.5

Other income(`m) 110 112 1.7 103 9.1 133 (15.8)

PBT (`m) 73 13 (82.7) 34 (62.9) 131 (90.3)

Tax (`m) 24 5 (78.7) 11 (53.3) 50 (89.7)

Tax rate (%) 33.0 40.6 757bps 32.2 839bps 38.1 249 bps

PAT (`m) 49 8 (84.6) 23 (67.5) 81 (90.7)


Revenue growth lower than expected

In 1QFY15, Shoppers Stop’s net sales (standalone) came in at 13.6% yoy to `6bn vs our expectation of `6.3bn. Like-to-like growth came in lower at 3.7% yoy as sales growth of the mature stores (greater than 5%) was -1% yoy as some stores were closed due to renovation. Consignment/SOR revenue came at 54% (57.9% in 4QFY14), bought-out items 43.5% and concession sales 2.6%. First Citizen’s share of revenue continues to remain ~72% (72% in 4QFY14 and 73% in 1QFY14), with 3.4m members.

Fig 8 – First Citizen members and their contribution to sales

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Fig 9 – Comparable volume growth; average selling price

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Fig 10 – Comparable sales growth

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Fig 11 – Sales/sq.ft. and total area

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EBITDA margin expands

EBITDA margin improved 75bps to 3.8% in 1QFY15 vs 3.1% in 1QFY14 on the back of cost optimization measures. Private label sales grew 9% yoy but proportion reduced to 17.1% vs 17.4% yoy. Management expects EBITDA margin to expand to over 8% as the store expansion slows down.

Hypercity remains a drag

Revenue from Hypercity (a 51% subsidiary) increased 7.9%, with comparable sales declining 5% due to a cut in store area. There is improvement in margins by 130bps yoy to 21% in Q1FY15 mainly due to two actions taken by the company one is downsizing the stores, and increasing in fashion mix to 15% v/s 11% in last quarter. However, it posted a loss of `184m during the quarter vs `247m yoy.

The new stores will not be selling furniture, white goods, mobiles, etc., aiding an expansion in EBITDA margin. So far, in Hypercity, eight stores are EBITDA positive.

Fig 12 – Private-label sales and growth

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Fig 13 – Private sales vs non-private sales

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Fig 14 – EBITDA and EBITDA margin

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Other highlights

The area increased from 5.41m sq.ft. in 4QFY14 to 5.5m sq.ft. in 1QFY15 with the addition of two Shoppers Stop department stores (to 69 now), two MAC stores and two Clinique stores. In FY15, we expect the company to open eight stores, taking the store count to 75. Another eight stores are likely to be added in FY16.

Fig 15 – Revenue vs store growth

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Fig 16 – Store count Stores No.s

Shoppers Stop Department stores 69

Crossword 48

Homestop 18

Mother Care 4

MAC/Estee/Clinique/Bobbi Brown 72

Hypercity 15

Total 226

Source: Company



Valuations

We maintain Hold, and value the stock on a sum-of-parts basis at `373, using the PE multiple for the standalone business and m.cap/sales for Hypercity and Crossword.

Fig 19 – Sum-of-parts calculation

Basis of Valuation Driver Value (`m) Multiple (x) Value (`m)Value Per share (`)

Standalone Business P/E Mar'16 1,216 17.0 20,667 249 Other Businesses Hypercity M Cap /sales - Mar'16 10,740 1.5 16,110 99 Crossword M Cap /sales - Mar'16 1,381 1.5 2,071 25

Fair Value (per share) 38,849 373Source: Anand Rathi Research

Risks

Revival in the macro-economic scenario

Increase/decrease in the pace of expansion.

Fig 17 – Sales/sq.ft. and total area (Hypercity)

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Fig 18 – Gross and EBITDA margins (Hypercity)

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Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 4 August 2014)

Shoppers Stop

3

1

2

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13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

Jul-1

4

Date Rating TP (`)

Share Price (`)

1 15-Jan-13 Hold 440 450 2 29-Oct-13 Hold 357 338 3 2-May-14 Hold 366 364

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.



Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5%

Anand Rathi Research Ratings Distribution (as of 4 August 2014) Buy Hold Sell Anand Rathi Research stock coverage (196) 60% 27% 13%

% who are investment banking clients 4% 0% 0%




Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.



Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5% Anand Rathi Research Ratings Distribution (as of 1 July 2014) Buy Hold Sell Anand Rathi Research stock coverage (196) 60% 27% 13% % who are investment banking clients 4% 0% 0%















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