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RISK ANALYSIS : Shoppers Stop. INDEX. India : Retail Industry Overview 2011 Shoppers Stop: An Overview Store Formats Strategic Alliance Type Of Retail Outlets Approach Vision International Brands Loyalty Program Customer Satisfaction Index Adverse Financial Analysis SWOT Analysis
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INDEX • India : Retail Industry Overview 2011 • Shoppers Stop: An Overview • Store Formats • Strategic Alliance • Type Of Retail Outlets • Approach • Vision • International Brands • Loyalty Program • Customer Satisfaction Index • Adverse Financial Analysis • SWOT Analysis • Risk Points raised by the Auditors • Competitor Common Stock Comparison
INDIA : RETAIL INDUSTRY OVERVIEW 2011 • Indian Retail Market Share: 22% of GDP • Contribution towards Total Employment: 8% • Total Retail Market : US $450 billion • Expected Growth in Retail Market: US $804.06 billion by 2016, market is expected to grow at 12% over the next 5 years and 7% during the next 10 years. • Compounded Annual Growth Rate (CAGR) of Indian Retail: 13.3% • Organized Retail Market: US $450 billion (5.5% of total market) • Expected Growth in Organized Retail Market: Expected to grow at 12.4% by 2016 and to US $200 billion by 2020. Source: India Retail Report 2012
SHOPPERS STOP: AN OVERVIEW Sources: http://corporate.shoppersstop.com/
SHOPPERS STOP: AN OVERVIEW Sources: http://corporate.shoppersstop.com/
SHOPPERS STOP FORMATS Shoppers Stop Ltd. Consolidated with SSL Subsidiary Companies 30% Sales Contribution JV Companies 2 2% Sales Contribution SS Department Stores Business 71% Sales Contribution SSL Stake 50% SSL Stake 51% • No of stores: 1 • GFA: 0.19 lacs sq ft • No of stores: 54 • GFA: 30.62 lacs sq ft. • No of stores: 12 • GFA: 12.35 lacs sq ft. • Sales as of Sep 2012 : Rs. 406 Cr • Sales for full year as of March 2012 : Rs 761 Cr SSL Stake 36.82% • No of stores:18 • GFA: 1.20 lacs sq ft. • No of stores: 12 • GFA: 1.99 lacs sq ft. No of stores: 39 GFA: 0.18 lacs sq ft. SSL Stake 100% • No of stores: 82 • Own Stores : 41 • GFA: 2.33 lacs sq ft. • 10 – 11 : 35 lacs visitors • 11 – 12 : 72 lacs visitors Well diversified portfolio to capture the consumer’s wallet share • No of stores: 5 • GFA: 0.18 lacs sq ft. Note : Above figures as of 30TH September 2012. GFA: Gross Floor Area Source: Shoppers Stop Annual Report 2011-12
STRATEGIC ALLIANCE • Shopper's Stop Ltd. has entered into a non exclusive retail agreement with world-renowned cosmetics major Estee Lauder to open M.A.0 Cosmetics stores in India. • Shopper's Stop Ltd. has a 51% stake in Hypercity Retail (India) Ltd. • Mothercare PLC of UK, the largest specialist retailer for infant and toddler care, is now in India. • Shopper's Stop Ltd.'s entry into airport retailing is marked by a joint venture with The Nuance Group AG of Switzerland, the world's leading airport retailer. • Shopper's Slop Ltd has forayed into the Entertainment sector by acquiring a 36.82% stake in Timezone Entertainment Private Limited which is in the business of setting up & operating Family Entertainment Centres (FECs). Source: Shoppers Stop Annual Report 2011-12
TYPE OF RETAIL OUTLETS Source: Shoppers Stop Annual Report 2011-12
VISION To be a Global Retailer in India and Maintain No.1 position in the Indian Market in the Department Store Category.
TRANSITIONED THE SHOPPERS STOP BRAND FROM PREMIUM TO BRIDGE-TO-LUXURY 2009 2005 Source: http://corporate.shoppersstop.com/investors/presentation-analyst.aspx
INTERNATIONAL BRANDS Improved Product Mix and Brands Profile to Attract “Aspirational” Customers • Jack & Jones, French Connection, CK Jeans, GAS, ESPRIT, Tommy Hilfiger, Mustang & Mango in apparel segment • Loccitane, Lancome, MAC, Clinique & Estee Lauder in cosmetics • CK, Armani & Gucci in sun glasses • Burberry, Nina Ricci, Diesel & Boss in watches PRIVATE LABELS • SHOPPERS STOP PRIVATE LABELS • Stop- Mens formal/casual/ethnic/womens western/ethnic, kids casual/ethnic • Kashish – Mens & womens ethnic • Life- Mens & womens Fashion • Vettorio Fratini- Premium formal& semi formal mens wear • Haute curry- fusion wear for women • Elliza Donatein- corporate womenswear • Ijeans wear- Mens denim
LOYALTY PROGRAM • The First CitizenShoppers’ Stop’s customer loyalty program is called The First Citizen. The program offers its members an opportunity to collect points and avail of innumerable special benefits. Currently, Shoppers’ Stop has a database of over 25.03 lakh members who contribute to nearly 72% of the total sales of Shoppers’ Stop. Source: Shoppers Stop Annual Report 2011-12
CUSTOMER SATISFICATION INDEX (CSI) Customer satisfaction index is calculated based on the following parameters: Merchandising Range and Quality Store Environment Staff Transaction Efficiency Loyalty Programme Schemes Promotions Customer experience in Shoppers Stop wrt the competitor stores There was a significant increase in customer satisfaction from year 2007 to year 2009, although there is a small decrease in customer satisfaction in year 2010 from year 2009. This may be due to increased choices offered to the customers by other stores and hence increasing expectations of the customer Source: Shoppers Stop Annual Report 2011.12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
ADVERSE FINANCIAL ANALYSIS Source: Shoppers Stop Annual Report, 2011-12, Shoppers Stop Quarterly Report s of 2011-12
SWOT ANALYSIS STRENGHTS • First Citizens Club has continued to be one of the main strengths of our business. In the year gone by the programme has exceeded the 2.5 million mark in memberships, making it one of the largest loyalty membership programs in the country across sectors. • The company continues to invest in our front and back end processes and systems. • The company created a strong distribution and logistics network, with our four Distribution Centres covering more than 400,000 square feet handling over 400,000 SKUs per year, and working 24x7. The Company believes that the “hub – and-spoke” model followed by it for its distribution network, will stand it in good stead for the expansion. • Company endeavors to make Shopping experience the differentiator. • The company assesses Customer Care Associates (CCAs) across all levels through assessment centres for promotion decisions, career planning and succession planning. Company also conducts associate satisfaction survey every year and derive ASI scores, which helps it in identifying the trust index scores of respect, credibility, fairness, pride with the organisation. • Company benefits from its Promoters’ association with the real estate business and their relationships with developers, which have helped the company, acquire preferred properties at competitive rates. • The Company imparts special training to its employees to ensure that service is not compromised on. The company’s store positioning in the “bridge to luxury” segment clearly sets apart its stores from those of the rest of the industry players. • Among the big players in the organized retail space in India, Shopper's Stop has always understood the criticality of scale, availability and experience, and has been an eager adopter of advanced, cutting edge technology. To help drive its growth strategy, Shopper's Stop is employing its reporting and analytics capabilities in the areas of merchandising, loyalty management, distribution and logistics, sales performance, loss prevention, and financial analysis. SAS provided the retailer with a business analytics framework for reporting and analytics using SAS Enterprise BI Server and SAS Enterprise Miner. • Access to standardized, timely and accurate data from its DRISHTI (Insight) data warehouse project, along with flexible reporting functionality. Opportunities Source: Shoppers Stop Annual Report, 2011-12, www.mbaskool.com, www.cio.in, www.sas.com,
SWOT ANALYSIS WEAKNESS • The company will be in expansion phase over next 36 months which will be a critical time as far as execution risk is concerned. • Rent is one of the largest components in a retail business fixed costs and the case is no different for the Company. Rentals are expected to harden once again in the near term. • Slowing expansion due to dependence on real estate developer for completing projects during slowdown. • Certain levies / cascading effect of taxes on the business which are proving to be a very large burden as there are no modes for the industry to recover or pass on these levies. Delay in the roll out of the GST regime is also a matter of concern. • The Company has invested in other entities and lower than expected returns from these entities will have an impact on the cash flows and consolidated results of the Company • It has lesser promotional strategies on both Above the Line and Below the Line level compared to global leaders. • Operating expenses of the company have substantially risen throughout the years which had its adverse effects on the profits of the financials of the company. • Severe consistent heavy hikes in Finance Charges have been proved to be a big matter of concern for the company. The needs an immediate attention over the issue before it could consolidate its adverse effects on profits of the company. • The funds available by the company are not being utilized by it in an efficient manner which reflects in its Current Ratio. • Company has both provided and obtained heavy financing and borrowings for itself as well as for its Associate companies which until the current stage has failed to show its purpose and worth which takes a heavy toll out of the profit as a part of interest charges. • The Net worth of Joint Venture Companies of SSL, i.e. Nuance Group (India) Private Limited and Timezone Entertainment Private Limited has substantially been eroded as at 31st March, 2012. Based on the business plans of these companies and the business valuation by an independent valuer, no provision for any loss is currently considered necessary in these financial statements. • Subsidiary of SSL, Hypercity Retail (India) Limited continues to make losses and the accumulated losses of Rs. 36,402.66lacs as at 31st March, 2012 have substantially eroded its Net worth as at the year end. Based on the Business plans, opportunities and business valuation by an independent valuer, the Company considers that there is no loss for which a provision is currently necessary in these financial statements. Source: Shoppers Stop Annual Report, 2011-12, www.mbaskool.com, www.cio.in, www.sas.com,
SWOT ANALYSIS OPPORTUNITIES • The company is expecting to launch into its next expansion phase in the next 36 months. The Company’s strategy to increase the number of departmental stores, and therefore improve city wise penetration in new cities, increase market share in existing cities through additional new stores in those cities, and new stores in Tier-II cities, remains unchanged. • Hypercity which is a 51% subsidiary of the Company has shown encouraging performance, with an overall sales growth of 27.5% and like to like sales growth of 9% for the year. • Company has diversified into multiple formats viz, HomeStop which retails hard and soft furnishing, M.A.C. and Estee Lauder which retails high end cosmetic products, Clinique which retails skin care products, Mothercare which retails infant and kids merchandise and airport retailing, by tying up with The Nuance Group AG of Switzerland. The Company has also made a successful foray into internet retailing through its e-retailing portal. The Company looks to focus and expand these formats. • Company believes that by it’s presence across all lifestyle categories in the departmental format, it’s strong brand value and it’s presence in the books and music segment, it is best placed to bring in international brands into the country, thereby enriching the product bouquet for it’s customers and in turn increasing opportunities for product diversification and profit enhancement. • After the clearance of FDI from the Rajya Sabha , Shopper Stop because of having an early presence in some International brands may be have an upper hand in competing with the Global multibrand retail companies than its local rivals. • Preferred partner for international brands in various categories due to diversified presence. Source: Shoppers Stop Annual Report, 2011-12, www.mbaskool.com, www.cio.in, www.sas.com,
SWOT ANALYSIS THREATS • Economic slowdowns have a direct impact on consumption. Retail, being the end service provider of consumption in the supply/value chain, is bound to face difficulties in an environment of economic slowdown. • With India continuing to be an attractive retail market, the Company expects many new entrants into the sector, thus increasing competition, also among existing rivals there is intense rivalry for new locations and quality real estate, therefore it sets up the foundations for increased intensity of competition among existing rivals. • With the clearance of FDI from the Government of India, Shopper Stop together with the local multibrand retailers like Wills Big Bazaar, Spencers, etc. Will also have to face severe competition from the global behemoths like Wallmarts. • Faced with increasing competitive pressure for customer wallet share, Shopper's Stop will have to improve customer satisfaction and loyalty, increase its breadth of merchandise and expand store operations into new markets, while maintaining profitability. Source: Shoppers Stop Annual Report, 2011-12, www.mbaskool.com, www.cio.in, www.sas.com,
RISK POINTS RAISED BY THE AUDITORS Following risk points were raised by the Auditors for the financial year 2011-2012: • According to the Auditor’s opinion, a substantial part of fixed assets has not been disposed off by the Company during the year. • The Company has granted unsecured loans to one party during the year. At the year-end, the outstanding balance of such loans aggregated Rs.8,730.68lacs (including interest) and the maximum amount involved during the year was Rs.16,500.00lacs. The rate of interest and other terms and conditions of such loans are, in the Auditor’s opinion, prima facie not prejudicial to the interests of the Company. • According to the Auditor’s opinion the terms and conditions of the guarantees given by the company for loans taken by its joint venture companies from banks are not prima facie prejudicial to the interests of the Company. • Auditor’s attention is invited to Note 31 to the Consolidated Financial Statements regarding non-provision of service tax for the period 1 June 2007 to 31 March 2010, on renting of immoveable properties given for commercial use, aggregating Rs. 2,010.90lacs, pending final disposal of the appeal filed before the Honourable Supreme Court, inter-alia, challenging the retrospective levy of the service tax. The matter is contingent upon the final outcome of the litigation. • Pursuant to levy of service tax on renting of immovable properties given for commercial use, retrospectively with effect from 1 June 2007 by the Finance Act, 2010, the Company has, based on a legal advice, and challenged the said levy and, inter-alia, its retrospective application. The Honourable Supreme Court has passed an interim order dated 14th October, 2011, with regard to the levy of service tax on immovable properties rented out for commercial use including its retrospective applicability from 1st June, 2007 in compliance of which, the Company has made an aggregate deposit of Rs.1,824.88lacs in respect of the liability for such service tax up to 30th September, 2011. From October 2011, the Company is accounting and paying for such service tax regularly as per directives of the Supreme Court. Pending the final disposal of the matter, the Company continues not to provide for the retrospective levy aggregating Rs.1,659.56lacs for the period 1st June, 2007 to 31st March, 2010. Source: Shoppers Stop Annual Report 2011-12
COMMON STOCK COMPARISON (RS. In Crs.) Source: Danodia Capital Advisors Report July 2012 Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.
COMMON STOCK COMPARISON (RS. In Crs.) Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.
COMMON STOCK COMPARISON Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.
THANK YOU BY: AKSHAT KAPOOR CHARTERED FINANCIAL ANALYST