Forensic Analyst, Trudence Capital Advisors

Nitin Mangal

Forensic Analyst

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Equity Capital Markets

FSN E-Commerce Ventures (Nykaa) / Equity Capital Markets

<p>We continue our focus on the coverage of IPO bound start-ups and next is none other than <a href="https://www.smartkarma.com/entities/fsn-e-commerce-ventures-nykaa" target="_blank" data-smartkarma-citation="entities:33796:1" rel="noopener">FSN E-Commerce Ventures (Nykaa) (1003622D IN)</a>. However, Nykaa stands apart from the rest since it is the one of those rare finds that have a positive profitability and this is why it looks promising in nature. Another differentiating aspect is that Nykaa operates as an omni-channel entity, having as many as 73 physical stores across the country. (However, most of the revenue is generated online).</p><p>Nykaa was founded only in 2012 and has gained a strong foothold in the beauty and personal care (BPC) space especially in the last few years. According to RedSeer, the company is the largest Specialty BPC platform in India in terms of value of products sold in F21. The company manages its BPC predominantly through inventory model, not to forget that it also has its own brands which it outsources the manufacturing. Nykaa has also started the ball rolling in the fashion territory in 2018, for which it mostly acts as a market place for its consumers and vendors.</p><p>Nykaa has a strong operational characteristics, there is hardly any doubt; however, one needs to look beyond it to get a more comprehensive view of the financials and governance. There are a few concerns on the accounting front that should not be overlooked. We also find stains on the governance, primarily related to remuneration of MD. Further, there were several small risk factors which were disclosed, that had acted as a resistance force in the past.</p>

We continue our focus on the coverage of IPO bound start-ups and next is none other than FSN E-Commerce Ventures (Nykaa) (1003622D IN). However, Nykaa stands apart from the rest since it is the one of those rare finds that have a positive profitability and this is why it looks promising in nature. Another differentiating aspect is that Nykaa operates as an omni-channel entity, having as many as 73 physical stores across the country. (However, most of the revenue is generated online).Nykaa was founded only in 2012 and has gained a strong foothold in the beauty and personal care (BPC) space especially in the last few years. According to RedSeer, the company is the largest Specialty BPC platform in India in terms of value of products sold in F21. The company manages its BPC predominantly through inventory model, not to forget that it also has its own brands which it outsources the manufacturing. Nykaa has also started the ball rolling in the fashion territory in 2018, for which it mostly acts as a market place for its consumers and vendors.Nykaa has a strong operational characteristics, there is hardly any doubt; however, one needs to look beyond it to get a more comprehensive view of the financials and governance. There are a few concerns on the accounting front that should not be overlooked. We also find stains on the governance, primarily related to remuneration of MD. Further, there were several small risk factors which were disclosed, that had acted as a resistance force in the past.

External broker reports(aggregated public sources), HDFC Securities

HDFC Securities

External broker reports(aggregated public sources)

Equity Bottom-Up

<p>Maintain SELL recommendation with a DCF-based TP of INR 180/sh (implying 9x FY23 EV/EBITDA). Shoppers Stop: STOP, given its predominant mall-based presence (~87% of stores), remained among the worst-hit companies by the pandemic in FY21 within our apparel universe. However, 4Q recovery (95% of baseline sales) has been better than expected (HSIE: -87.5%). Gross margin improved sequentially (GAAP: 40.9% vs HSIE: 37.9%). Absolute operating cost structure was in line. 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.</p><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

Maintain SELL recommendation with a DCF-based TP of INR 180/sh (implying 9x FY23 EV/EBITDA). Shoppers Stop: STOP, given its predominant mall-based presence (~87% of stores), remained among the worst-hit companies by the pandemic in FY21 within our apparel universe. However, 4Q recovery (95% of baseline sales) has been better than expected (HSIE: -87.5%). Gross margin improved sequentially (GAAP: 40.9% vs HSIE: 37.9%). Absolute operating cost structure was in line. 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.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

External broker reports(aggregated public sources), ICICI Securities Ltd

ICICI Securities Limited

<p>With revenue in FY21 being significantly impacted by the pandemic (down 49% YoY), SSL undertook several cost optimisation initiatives with monthly operating cost run-rate decline from Rs 109 crore in FY20 to Rs 72 crore in FY21 (down 33% YoY). Annual cost savings were at Rs 433 crore in FY21. The management expects cost savings worth Rs 200 crore to be sustainable in FY22E. Re-engineered cost structure would aid EBITDA margins, going...</p><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

With revenue in FY21 being significantly impacted by the pandemic (down 49% YoY), SSL undertook several cost optimisation initiatives with monthly operating cost run-rate decline from Rs 109 crore in FY20 to Rs 72 crore in FY21 (down 33% YoY). Annual cost savings were at Rs 433 crore in FY21. The management expects cost savings worth Rs 200 crore to be sustainable in FY22E. Re-engineered cost structure would aid EBITDA margins, going...Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

SHOPERSTOP: With revenue in FY21 being significantly impacted by the pandemic (down 49% YoY), SSL...

External broker reports(aggregated public sources), Motilal Oswal Financial Services Limited

Motilal Oswal

<p>EBITDA dropped 25% YoY to INR956m (40% miss) on account of higher than expected SG&amp;A; and EBITDA margin shrinking 350bp to 14.2%. The miss could be attributed to higher than estimated operational costs, with employee/SG&amp;A; cost at INR660m/INR1.1b (est. INR605m/INR869m). Other income stood at INR207m (3x YoY), which includes INR96m adjusted for rent concessions. The company recorded an exceptional expense of INR124m towards impairment of equity investment and financial assistance...</p>
<div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

EBITDA dropped 25% YoY to INR956m (40% miss) on account of higher than expected SG&amp;A; and EBITDA margin shrinking 350bp to 14.2%. The miss could be attributed to higher than estimated operational costs, with employee/SG&amp;A; cost at INR660m/INR1.1b (est. INR605m/INR869m). Other income stood at INR207m (3x YoY), which includes INR96m adjusted for rent concessions. The company recorded an exceptional expense of INR124m towards impairment of equity investment and financial assistance...
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

India

Shoppers Stop Ltd. operates a chain of retail shops.  The Company retails men's, women's, and children's clothing; cosmetics and skin and hair care products;  home appliances; housewares; linens; luggage; jewelry; and accessories.

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Shoppers Stop (SHOP IN)

Nykaa IPO: Not Perfectly Elegant

Nykaa has a strong operational characteristics, there is hardly any doubt, but concerns on the accounting front that should not be overlooked,...

Nitin Mangal

HSIE Results Daily: Shoppers Stop

Maintain SELL recommendation with a DCF-based TP of INR 180/sh (implying 9x FY23 EV/EBITDA). Shoppers Stop: STOP, given its predominant mall-based...

HDFC Securities

HSIE Results Daily: Shoppers Stop

Maintain SELL recommendation with a DCF-based TP of INR 180/sh (implying 9x FY23 EV/EBITDA). Shoppers Stop: STOP, given its predominant mall-based...

HDFC Securities

SHOPERSTOP: With revenue in FY21 being significantly impacted by the pandemic (down 49% YoY), SSL...

With revenue in FY21 being significantly impacted by the pandemic (down 49% YoY), SSL undertook several cost optimisation initiatives with monthly...

ICICI Securities Limited

Continues to be hit by COVID-19 woes

EBITDA dropped 25% YoY to INR956m (40% miss) on account of higher than expected SG&A; and EBITDA margin shrinking 350bp to 14.2%. The miss could be...

Motilal Oswal

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