obody has to tell you what Shoppers' Stop is all about. Everyone is familiar with this department store.
Now, they are inviting you to be part of them. That's right, they are coming out with an Initial Public Offering.
An IPO is when a company makes its shares available to the public so they can buy and sell it. And, when you own the shares of a company, you own a part of that company (however small your share may be).
Why an IPO?
Expansion! Expansion! Expansion!
Shoppers' Stop Limited wants the money to expand -- in a big way!
According to the draft prospectus filed with the Securities and Exchange Board of India, Shoppers' Stop plans to spend a whopping Rs 136 crore (Rs 1.36 billion) from the public issue on setting up new stores and renovating existing stores.
As of now, Shoppers' Stop has 16 stores spread across Mumbai, Bangalore, Delhi, Chennai, Kolkata, Hyderabad, Jaipur, Pune and Gurgaon.
Shoppers' Stop plans to open 11 more outlets by 2007, of which three have already opened before March 31, 2005. And four each will be launched in the next two consecutive financial years.
Books, here we come
Since Shoppers' Stop is already into clothing, cosmetics and lifestyle, they are keen to enter the books segment too. They currently have a 59% stake in Crosswords -- the book and music store.
They may consider buying out the balance 49% currently owned by ICICI Venture.
As per the agreement between the two partners, this can be done before June 30, 2005.
Discount stores
The company is also planning a 51% stake in Hypercity Retail, an outfit floated by its promoters for setting up 'hypermarkets' or large discount stores in India.
Though Shoppers' Stop's foray into this business will be a new one, Pantaloon is a well-established player in this segment with large discount outlets like Big Bazaar and Food Bazaar.
Why the expansion?
Rvenue growth for retail outlets like Shoppers' Stop depends directly on the number of retail branches it has.
Hence, the expansion should benefit them tremendously.
According to B S Nagesh, the company's managing director and CEO, "The retailing industry in India stands at Rs 8570 billion, out of which just 2% is organised retail. We foresee this market share (of organised retail) increasing to 10% to 12% by 2010."
Can they do it?
Shoppers' Stop is a professionally managed company and, given its credentials, it is seems probable that the company will be able to implement its envisaged plan within the given time frame.
One must also note that the company promoters, the K Raheja group, have for long been involved in the real estate business. Hence, scaling up retail property space in prime locations will not be a problem for them.
Shoppers' Stop's revenues will grow rapidly as soon as these retail outlets become operational.
Is the competition not hot?
The competition will come from other known brands in the retail segment like Pantaloon, Westside (Trent earlier) and Lifestyle.
Moreover, Shoppers' Stop's retail outlets sell world-famous apparel clothing brands like Louise Philippe, Arrow, Levi's, Arrow, and Lego and Mattel in the toy segment. Significantly, 80% of Shoppers' Stop's revenues are generated selling these brands and the remaining 20% through Shoppers' Stop-owned private labels like STOP, Kashish, LIFE and Vettorio Frattini.
Most of these brands are a hit with teenagers who constitute a mammoth 160 million of India's billion-plus population. Thus, Indian demographics clearly indicate that mall mania is the future for retailers like SSL.
Are they making profits?
Shoppers' Stop reported losses of Rs 8.3 crore (83 million) and Rs 23 crore (230 million) for the financial years ending March 31, 2000 and 2001.
The losses were because of aggressive expansion (Shoppers' Stop opened four retail outlets between September 1999 and December 2000) and incurred massive expenditure to scale up technology, logistics and distribution systems.
Simultaneously, Shoppers' Stop also acquired a 51% stake in Crosswords.
In 2002, Shoppers' Stop turned the corner. With improved market conditions, it reported a net profit of Rs 0.2 crore (2 million) for the financial year 2002.
In 2003, its net profit jumped manifold to Rs 10.6 crore (106 million), Rs 13.1 crore (131 million) for the financial year 2004, and Rs 19 crore (190 million) for the financial year ending March 31, 2005.
Let's look at the ratios
OPM
Operating Profit Margin is a tool to measure a company's operating efficiency. OPM helps investors understand how much profit a company makes for every Rs 100 in sales. OPM is calculated before taxes and interest.
OPM = Operating Income / Net Sales x 100
OPM = Rs 38.22 crore / Rs 503 crore x 100 = 7.6%
Shoppers' Stop's OPM improved to 7.6% from 6.8%. This 0.8% jump in OPM proves that a sound management, which successfully controlled operating and administrative expenses, guides the company.
An improved OPM translates into more profits for every Rs 100 of sales. The higher the OPM of a company, the higher its profitability.
Significantly, OPM improved despite a fall in operating income.
EPS
Earnings Per Share = net profit / total number of shares.
Shoppers' Stop will have an equity base of Rs 3.43 crore (Rs 343 million) shares after the issue.
Based on this, and a net profit of Rs 19 crore for March 2005, Shoppers' Stop's EPS works out to Rs 5.50.
PE
Price Earnings = Market Price / EPS.
The shares will be priced between Rs 210 to Rs 250 per share. At the upper end of the price band (Rs 250), the Shoppers' Stop's PE works out to around 45.
This compares fairly with Westside (PE: 47) and Pantaloon (PE: 66).
A low PE stock is much sought after as it leaves scope for an increase in the share's price once the net profits earned by a company improve.
To understand these ratios in detail, read Spot a good stock. Win big!
Is it too highly priced?
The shares have a face value of Rs 10. The price they are being sold at is within the Rs 210-250 range.
At the lower end of the price band (Rs 210), the issue seems to be fairly priced since it has a PE of 38.
At the higher end of the price band (Rs 250), the PE is 45.
While a PE of 45 is a bit high, investors who stay loyal with the stock for the next few financial years can make solid returns.
Net profits are likely to increase by at least 45% in the next two years. In addition, costs will be contained given that the technology, logistics and distribution platforms are already in place.
IPO dates: April 28 to May 4
Face value of shares: Rs 10
Price of shares: Rs 210 Rs 250
Number of shares issued: 0.69 crore (6.9 million) shares
Amount it plans to mop up: At the above price band, between Rs 144.9-172.5 crore (Rs 1449-1725 million).
To understand face value of shares and price of shares, read What's in a share? Money!
Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information). Readers are advised to cross-verify the information and to also seek professional and expert advice before taking any decision based on the content provided above or acting on any recommendations made herein. The information or opinions provided herein are not a substitute for professional advice.
