• Mayank Mehraa CFA, FRM

Spencer’s Retail Ltd (SRL)


Spencer’s Retail Limited was established in 1893 by a British national in India.

The company acquired Indian ownership in the 1960s and became part of the

RPG Group in 1989. The company became one of the earliest entrants in India’s

modern organised retail space when it launched India’s first hypermarket in

Hyderabad in 2000.


Highlights:

The company operates 191 retail stores across 42 cities in various formats. Providing a wide choice of 88,000+ SKUs across diversified categories like food, fashion & lifestyle, personal care, general merchandise, consumer durables, and electrical.


  • FY20; reported revenue growth of 8.5% and an EBIT margin of 4.6%. Net consolidated debt at 191.5 Cr, seems comfortable owing to the deep pockets and increased focus of the promoter group. Unit level economics grew 45% with a substantial increase of 125% in registered customer base. On the overall, the number of orders grew 175%

  • Increased focus of the promoter group is evident owing to recent investments in R&D and improving customer experience:

  • Invested in AI/ML systems for better and efficient inventory management and softwares of efficient warehouse management.

  • Customer loyalty program and inhouse wallet reward program.

  • Trained floor managers to improve in-person customer experience

  • Initiated door-to-door programs to encourage customers near the store to visit and increase footfall.

  • The company even through the pandemic demonstrated growth via:

  • Capitalising on their e-commerce platform for home delivery of products.

  • Partnering with other online platforms like Whatsapp, Uber etc- for order fulfillment

  • Acquisition of “Natural Baskets” increased geographical exposure and added to the portfolio of stores where product portfolios were expanded.

  • Catering to FAD:

  • Improved assortment with attractive packaging for Exotic vegetables and imported fruits.

Growth:

  • India’s retail market is estimated to grow at 9-10% (CAGR), driven by socio-demographic and economic factors like urbanisation, income growth and nuclear families.

  • India's organised retail penetration is lower than other countries like the United States (85%), indicating headroom. The share of organised retail market is expected to increase from 12 % in FY 2019 to 25 percent in FY 2024 backed by technology, internet penetration and rural consumption.

  • Increasing population of millennials who stay away from home for work, preferring to buy online or at super-markets owing to relatability. The same population is expected to grow higher in time.

  • Approximately 80%-85% of SRL’s and NBL’s product basket is non-discretionary in nature which provides stability in demand for the products.


Fundamentals:

  • With a market capitalisation of 741 CR as at market closing of 5th March’ 2021, the company trades at 0.29x TTM Sales (viz.- 2476 CR).

  • The company operates with a negative working capital, which can significantly boost growth as the profitability picks up.

  • Operates in an industry with low collection period, the average inventory holding period is between 40-45 days. While its average credit period is of upto 1.5 months.

  • Increased focus on efficiency in warehouse & inventory management and improvement in sales/ employee should reduce expense & costs going ahead.

  • While, the current losses should raise red flags owing to contraction in book value. Promoter’s strong financial position, the company's comfortable debt and expectation of the company to turn profitable in coming quarters brings comfort.

  • Past year’s fundamentals seem dampened owing to the pandemic and recent acquisitions & investments which would bear fruit going ahead.

  • Assuming the company does manage to turn profitable in quarters ahead, the company would enjoy a tax shield owing to interest, depreciation and “loss carried forward” from the past years.



Recent Listing:

SRL (formerly RP-SG Retail Limited) was incorporated on February 08, 2017 as

a part of the RP-Sanjiv Goenka Group. The retail business (except the business in the state of Gujarat and some investments) of erstwhile Spencer’s Retail Ltd (wholly owned subsidiary of CESC Ltd, the flagship company of the group) was transferred to RP-SG Retail Limited under the scheme of arrangement of the CESC Group. As a result of the demerger, the shareholders of CESC Ltd were allotted 6 equity shares of the company of the face value of Rs.5/- each for every 10 equity shares held by them in CESC Ltd held on October 31, 2018 (the Record Date). The assets and liabilities of erstwhile SRL and other retail undertakings of CESC Ltd, were transferred to RP-SG Retail Ltd with an appointed date of October 01, 2017. Subsequently, RP-SG Retail Ltd was rechristened as Spencers Retail Limited in December 2018 and the equity shares got listed in BSE, NSE and CSE in January 2019.

SRL is a multi-format retailer providing merchandise across categories such as FMCG, fashion, food, staples, general merchandise, personal care, home essentials, electrical and electronics. In July 2019, the company acquired 100% stake in Natures Basket Limited (NBL) from Godrej Industries Ltd at an enterprise value of Rs.300 crore settled through cash and takeover of outstanding debts. NBL operates with 31 stores with a total trading area of 0.84 lakh sq feet as on March 31, 2020.

(Source: Care Rating; Spencers Retail Limited November 23, 2020)



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