Maintain SELL on Shoppers Stop - Still not out of the woods! - HDFC Securities
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Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities
STOP (while recovering) continues to be among the worst hit within our apparel universe, given its pre-dominant mall-based presence (~87% of stores). Topline recovery at ~71% was marginally better than expected (HSIE: 70%). Gross margin still remains lower than 3QFY20; improving sequentially though (GAAP: 38.6% vs HSIE: 37.5%). However, cost savings were lower than expected (Post IND-AS 116 Cost of retailing stood at 25.2% vs HSIE: 21%) as mean reversion in rental concessions and employee expenses outpaced topline recovery. We continue to remain circumspect on the longevity of the business as cost arbitrage between pure-play department stores and online platforms continues to shrink with each passing year. Maintain FY22/23 EPS estimates and SELL recommendation with an unchanged DCF-based TP of Rs. 175/sh.
Maintain SELL on Asian Paints - Bolt out of the blue - HDFC Securities
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Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities
APNT delivered a strong surprise in 3QFY21 with top-line growth of 25% YoY. Growth was all-round. Domestic decorative business clocked 33/26% volume/value growth underpinned by (1) Strong pent-up + festive/marriage demand, (2) pick-up in Metros and Tier 1/2 cities (double-digit volume growth). Projects and large institutional business performed well too. EBITDAM expanded 440bp to 26.3% courtesy high GMs and strong cost control. While the rebound in demand has certainly surprised us, normalisation trend is unlikely to change in a category like Paints. We marginally revise our FY22/23 EPS estimates upwards (~3% resp), consequently, our DCF-based TP stands revised to Rs. 2,300/sh (earlier TP: Rs. 2,250/sh) implying 56x FY23 P/E. Maintain Sell.
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