| Shoppers Stop Limited | ||
| Rating Upgraded to ‘CRISIL A1+’ | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its short-term rating on the commercial paper programme of Shoppers Stop Limited (Shoppers Stop) to ‘CRISIL A1+’ from ‘CRISIL A1’.
The rating upgrade factors in the strong improvement in operating margin backed by healthy revenue growth resulting in strong cash accruals expected to sustained over the medium term. Shoppers Stop’s improvement in business performance is driven by the recovery seen in retail mobility and increase in footfalls with waning impact of the pandemic resulting in company surpassing pre-pandemic level performance comfortably in fiscal 2023. During quarter one of the current fiscal, which is a seasonally weaker quarter, company registered revenues of Rs. 1,190 crore which is ~8% higher than pre-pandemic quarter of Apr-Jun’19. Performance is expected to scale up even further, during the next two quarters driven by festive season demand. The company’s business performance has shown a steady recovery from the second quarter of fiscal 2022 onwards post the impact of second wave of COVID during quarter one. Overall revenues registered a sharp ~45% year on year growth in fiscal 2022 though well below pre-pandemic year of fiscal 2020.
With higher sales from private label brands coupled with LFL growth and better operating leverage, the operating margins (Non-GAAP) are also expected to sharply improve to ~6.5- 7.5%. Operating margins during quarter one of current fiscal stood at ~5.6% and is expected to be higher in ensuing fiscals with higher operating leverage backed by festive demand.
The company’s financial risk profile is characterized by a healthy capital structure reflected in gearing of 0.47 times in fiscal 2022. Total debt during the period increased to Rs. 216 crore from Rs. 186 crore as company had taken on additional debt to shore up its liquidity position in anticipation of future waves of the pandemic. However, liquidity remained strong with liquid surplus of ~Rs. 180 crore as on March 31, 2022. With normalization of business environment, debt protection metrics like interest coverage and net cash accruals to total debt (NCATD) are also expected to improve to healthy levels of over 20 times and 2 times respectively over the medium term.
The rating continues to reflect the established position of Shoppers Stop in the departmental stores category, prudent working capital management and above-average financial risk profile. Shoppers Stop also enjoys healthy financial flexibility, being a part of the K Raheja group having interests in real estate, hospitality and retail segment. These strengths are partially offset by susceptibility of operating performance to economic downturns and increasing competition in the apparel retail segment. |
Analytical Approach For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of Shoppers Stop and its subsidiaries, which are collectively referred to as Shoppers Stop.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Shoppers Stop is one of India’s largest departmental store chains, with retail space of 3.8 (Carpet Area) million square feet (sq ft) as on June 30, 2022. With a diverse range of offerings (apparel, baby care, footwear, personal accessories, and furniture), the format targets the relatively less price-sensitive, upper- and upper-middle-class consumers. The company has established a strong brand equity in this target demographic, with customers (through its loyalty program, First Citizen) contributing around 79% to sales as on 31st March 2022. The company has also successfully scaled up this franchise through regular store additions. The number of outlets were 90 as on June 30, 2022, and there are plans to add another 10 by end of 2023 with focus on smaller stores in tier 2/3 cities. Strong brand equity and improvement in retail traffic are likely to help the company towards the second half of this fiscal.
Shoppers Stop is strongly focussing on developing omni-channels and has seen 59% year-on-year growth in sales in fiscal 2022 (with contribution of 7.2% in the overall sales). Private label and exclusive brands also showed a 45% growth with significant volume growth and contribution of 14%.
Inventory management practices are robust. In fiscal 2022, over 60-65% of revenue was derived from merchandise procured on consignment or sale-or-return basis. This optimal mix ensures an adequate gross margin while reducing susceptibility to inventory build-up during a slowdown, or to unsuccessful store additions. Besides, quick cash conversion on sales also minimises dependence on working capital limit.
Company’s capital structure remained healthy with gearing at 0.47 time as on March 31, 2022. It is expected to improve further to below 0.25x times over the medium term with progressive repayment of debt and accretion of profit to reserves. Debt protection metrics which got impacted over the past two fiscals owing to the pandemic are expected to improve sharply over the medium term. Interest coverage and net cash accruals to total debt (NCATD) are also expected to improve to healthy levels of over 20 times and 2 times respectively over the medium term.
Weaknesses:
The branded apparel segment relies heavily on the disposable income of its customer segment and is susceptible to economic cycles because of the discretionary nature of purchases. Large expansion by retailers can lead to pressure on their operating margins as earnings from existing stores may not adequately offset losses from high proportion of new stores added. While large portion of SSL's stores have broken even, significant improvement in its operating profitability from here on, is unlikely due to gestation losses from new stores and inflationary pressures on raw material prices.
The attractiveness of the apparel segment has led to the entry of established domestic players such as Lifestyle International Pvt Ltd ('CRISIL AA/Positive/CRISIL A1+') Reliance Retail Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Trent Ltd and Aditya Birla Fashion and Retail Ltd ('CRISIL AA/Positive/CRISIL A1+').
Limited diversity of offerings and absence of Shoppers Stop in value retail, which is a more resilient business, is a negative compared to peers. Moreover, the company has low proportion of the more profitable private label sales. However, its established position in the departmental stores segment and increased focus on online retailing should benefit revenue gradually. |
Liquidity: Strong Liquid surplus remained comfortable at Rs 183 crore as on June 30, 2022. Further, company’s working capital limits of Rs. 149 crore were utilized at an average of 39% for the 12 months through September 2022 providing further cushion. Prudent working capital management and continued cost optimization should further support liquidity. Annual capex of ~Rs. 180-200 crore per annum coupled with repayment obligations of Rs. 60-100 crore should be comfortably funded from annual accruals and available liquid surplus. Further, being a part of the K Raheja group also supports financial flexibility. Promoters have demonstrated providing need-based support to the company in the past. |
Rating Sensitivity factors Downward factors
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About the Company Shoppers Stop is a K Raheja Corp group company promoted by Mr Chandru L Raheja founded in 1991. SSL is one of the India’s leading Omni-Channel retailers of fashion. The promoter holds a 65.55% stake in the company as on June 30, 2022. The Company is primarily engaged in the business of retail trade through retail and departmental store facilities. Shoppers Stop is one of the largest departmental store chains in India with 88 departmental stores and retail chargeable space of 4.4 million sq ft (Carpet Area is 80%) as on March 31, 2022. The company also operates Beauty segment stores, Home Stop (retailing home décor) and airport stores. The company is listed in BSE & NSE.
In August 2021, the board approved sale of its 100% stake in Crossword Bookstores Ltd in four tranches at a business valuation of Rs 41.6 crore to focus on its core business. SSL disposed of more than 51% of the share capital in Oct 2021 & 19.50% in April 2022 and hence crossword now ceased to be the wholly owned subsidiary. However, on account of fully subscribing to the rights issue of Crossword, SSL now holds 29.50% of equity as on -June 30, , 2022 and accordingly Crossword continues to be as associate company.
For the three months ended -June 30, 2022, the company reported non-GAAP revenue of Rs 1,190 crore and PAT of Rs 23 crore, against revenue of Rs. 246 crore and loss of Rs 137 crore for the corresponding period previous fiscal. |
Key Financial Indicators (Consolidated)
^CRISIL Ratings adjusted (excluding the impact of Ind AS 116 accounting standard) #excluding IND-AS adjustment of in networth |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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