Shopper’s Stop announced its plants to issue 40 lakh shares through a preferential issue to qualified institutional buyers. The Qualified Institutional Placement route has become a preferred means of raising funds for companies, as it is fast and there seem enough investor appetite for Indian equities. The company has not spelled out why it is raising this money, but it could be used for working capital purposes, reducing debt and funding its ongoing investment programme.
During the six months endeded September 2009, Shopper’s sales (net of VAT) grew by 7% to Rs 702 crore and its profit was Rs 9.7 crore versus a loss of Rs 39.6 crore in the previous corresponding period. Though interest as a percentage of sales is only 1.6%, it takes away nearly 27% of its earnings before interest, depreciation, tax and amortisation (EBIDTA). Hence, a lowering of its debt burden will help improve its profitability. After a loss of Rs 82 crore in 2008-09, Shopper’s Stop returned turned profitable in this fiscal, with a first half net profit of Rs 17 crore.
While net additions to retail area in 2009-10 have been minimal, a gradual improvement in the retail environment will see this change. As of April 2009, Shopper’s had 1.82mn square feet, including 0.3mn under speciality stores. This area had increased to 1.88mn sq.ft., as of September 2009, with Shopper’s Stop stores contributing to a major part of the addition.
It will also be allotting 40 lakh warrants to promoters entitling them to an equal number of shares. This will ensure that their stake in the company does not get diluted after the QIP issue. They will have to pay 25% of the price upfront as margin money for getting these warrants. The rest will be paid when they convert the warrants to equity shares. This margin money too will come handy for Shopper’s operations.