Analysts' corner: Shoppers' Stop

IL&FS Investsmart has a 'positive' outlook on Shoppers' Stop, which reported net sales of Rs 180.5 crore and net profit of Rs 12.1 crore, a y-o-y increase of 44 per cent and 23 per cent respectively, in the quarter ended December 31, 2005.

Its EBITDA rose 37 per cent, but the EBITDA margin declined 60 bps owing to decrease in the private label mix to 18.2 per cent from 18.5 per cent.

The report believes that as the company increases its presence in other cities and adds new retail spaces, it would realise higher revenues, going forward.

The increase in sales was due to 25 per cent growth in retail space to 0.95 million sq ft and 6.6 per cent rise in sales per sq ft. The base of its loyal customers, First Citizens, crossed 0.6 million, up 55 per cent, and their contribution to sales increased to 60 per cent.

Apar Industries

Brics PCG Research recommends a 'buy' on Apar Industries, whose net sales for the quarter ended December 31, 2005 rose 38.1 per cent over the corresponding previous quarter figure, to Rs 315 crore.

However, this was a slight 2.38 per cent dip, compared with the previous quarter of this fiscal. The cost of raw material reduced by 0.84 per cent q-o-q, which helped raise the raw material-to-net sales ratio to 81.3 per cent versus 80.2 per cent in Q2 FY06.

The company registered a growth of 38.53 per cent in operating profit to Rs 26.64 crore against Rs 19.22 crore in Q2 FY06. This supported an expansion in the operating margin to 9.6 per cent.

Its net profit rose 29.44 per cent to Rs 9.9 crore. The recent shift in the company's product mix is driven by its plans to place more emphasis on the conductor segment and explore opportunities to establish new manufacturing plants in different parts of the country.

SAIL

IL&FS Investsmart, in its results update, has downgraded its rating on SAIL to 'market outperformer'. Lower steel prices and higher costs impacted the company's profitability.

The company's numbers in the quarter ended December 31, 2005 were below expectations. Lower steel prices, coupled with an increase in coking coal prices, impacted the company's performance.

While net revenues fell 18.5 per cent y-o-y, net profits dropped steeply by 54.8 per cent y-o-y. Going forward, the report expects that rising volumes and lower coking coal prices would partially offset the impact of low steel prices.

Unlike Tata Steel, SAIL's product mix has a lower proportion of branded and value-added steel; hence, realisations and revenues are more susceptible to changes in steel prices.

This apart, given that the company depends upon external sources for coking coal, its cost structure is also impacted by volatility in raw material prices.