Shoppers' Stop rights issue likely by June

Shoppers' Stop's rights issue are likely to hit the market in April-June, said Managing Director B S Nagesh to Newswire18.

"There is no question of delaying our rights issue. It will happen in the next quarter. All our large investors who along with the promoters hold close to 97 per cent of the equity have expressed confidence in the proposed issue," said Nagesh, adding that dismissing media reports the company was contemplating deferring its rights issue plan.

K Raheja Group-promoted Shoppers' Stop's store size will reach "critical mass" in 2010-11 (April-March) when the company will start enjoying a stable operating margin of 7-8 per cent, said Nagesh.

"Our financial health particularly on the margin front would improve and stabilise from 2010-11 onwards when the number of our flagship Shoppers' Stop stores reach 50 and total area across all format stores double to 3.2 million sqft from 1.6 million sqft now."

The company has equally aggressive growth plans for stores other than Shoppers' Stop.

By 2010-11, the company plans to have 100 stores each of Crossword, Mothercare and cafes such as Brio and Desi Cafe.

At present, it has 28 Crossword and 19 Mothercare stores and 24 Brio and Desi Cafes.

Additionally, subsidiary Gateway Multichannel Retail (India), jointly with the UK's Home Retail Group, will set up 23 stores by 2010-11 over 2.5 million sqft, compared with just a single store Hypercity Argos in Thane.

MARGIN SQUEEZE
Before achieving critical size, Shoppers' Stop will see margins shrinking to almost half in 2008-09 and 2009-10 as its plan to add new stores will take around two years to turnaround.

"Our margins on EBITDA (earnings before interest, tax, depreciation and amortisation) level will drop to 4-4.5 per cent in the next two years from the current level of 8 per cent as we turn aggressive in our expansion plans," Nagesh said.

High real estate price is the key factor affecting the company's margins but it is not likely to "compromise" on its store sizes.

"Unlike others, we don't put up stores with narrow aisles, tiny trial rooms and cramped staff office space whatever be the cost of that property."

In 2007-08, the company has been "conservative in its growth strategy", setting up only three Shoppers' Stop stores while the average opening has been four-five stores a year.

In 2008-09, six-eight Shoppers' Stop will be opened, Nagesh said. That would put its EBITDA under check in 2008-10.

"Our stores take 8-9 quarters to stand on its feet and so on a base of 23 stores, 11 new stores""3 this year and 8 planned next year""would keep margins under check. But once the base doubles to 50 in 2010-11, we expect our margins to improve," he said.

NO SALE PLANS
Nagesh brushed aside rumours of the promoters considering selling off the company following reports of AV Birla Group eyeing the company.

"We have big expansion plans and we are not looking for buyers. As for media reports, they originated from a reported comment of an AV Birla official, who I understand was misquoted. We even got a written clarification from the AV Birla Group to remove any apprehension in the minds of our investors," he said.