Shoppers Stop Valuation Excel Model and Intrinsic Value of Shares

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Shoppers Stop Valuation : About the Company

Shoppers Stop is the first departmental store in India and has an annual footprint of 110 million customers. It currently has 274 stores and 7.5 thousand employees. The overall retail space owned by the company is 4.5 million sq ft. Their target customer segment is the fast-growing middle to high-income families in India, where women are primary influencers. Overall they have a presence in 42+ cities in India including metros like Mumbai and Delhi.

The company is focused on expansion and has a loyal customer base. It started 9 departmental stores and 20 beauty door outlets this year. The capital expenditure is done through internal profits and not by external debt. The four main business pillars are their 2 loyalty programs, private brands and Arcelia beauty chain. Their private brands include Kashish, Jones New York, Nayomi, Rocky star etc which contributes 12% to the total revenue. The company has developed an omnichannel digital platform for shopping and has 8.4 million app downloads till now. This platform has 18+ million customer visits and 25,000+ pin code coverage across India. They have to compete with other online platforms like Myntra and Naykaa for customer retention. From here, we go ahead with Shoppers Stop Valuation and Intrinsic Value of its shares.

Read more here: Shoppers Stop Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares
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You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Shoppers Stop Valuation.

Financial Year Revenue Growth Rate
Year 1 -3%
Year 2 -50%
Year 3 82%
Year 4 13%
Year 5 12%
Revenue Growth Rates: Shoppers Stop Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Shoppers Stop Valuation
Financial Statements Forecast : Shoppers Stop Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 853 866 2215 2033 2165
Free Cash Flow to Equity 748 -4083 5952 2898 3038
FCFF and FCFE values: Shoppers Stop Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 2164.50
Growth Rate 5.00%
Cost of Capital 15.16%
Terminal Value 22367.82
Terminal Value: Shoppers Stop Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Shoppers Stop Valuation.

WACC Calculation for Shoppers Stop Valuation.
WACC Calculation for Shoppers Stop Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Shoppers Stop Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Shoppers Stop Valuation.
PV of FCFF and FCFE for Shoppers Stop Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFF and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Shoppers Stop Valuation Units
PV in INR Million 15515
No of Shares Outstanding (In Million) 88
Intrinsic Value 176.30
Current Market Price of Share 207.00
Current Discount/Premium 16%
Intrinsic Value of the Shares: Shoppers Stop Valuation

Shoppers Stop Valuation and Intrinsic Share Price = INR 176.30

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References: Investopedia
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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