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Shoppers Stop to raise funds via share sale

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Indian retailer Shoppers Stop Ltd. expects to raise more than 2.50 billion rupees ($54.1 million) via a proposed share sale partly for setting up stores as consumer spending improves after a slump last year.

“The way we see it, the first quarter was tough, the second quarter was a return to normalcy, the third quarter will be growth and the fourth quarter will be higher growth,” President and Chief Executive Govind Shrikhande told Dow Jones Newswires Tuesday.

Shoppers Stop and others such as Pantaloon Retail (India) Ltd., Koutons Retail India Ltd. and unlisted Spencer’s Retail Ltd. faced a tough past year when the economic downturn forced them to cut back growth plans and it became harder to raise money to build stores and supply chains.

But these retailers are now looking to raise funds via private equity deals, institutional placement or from strategic investors as the economy recovers.

Shoppers Stop had said Saturday it has received board approval to issue 4 million shares to institutional investors and 4 million convertible warrants to founders.

Mr. Shrikhande said the company opted for an institutional placement-cum-preferential allotment route to raise funds over its earlier proposed rights issue as the process will be faster. The company’s founders will maintain their stake at 68.5% after the fundraising, he added.

Mr. Shrikhande said also he expects same-store sales growth to improve in the current and subsequent quarters from the 2.3% rise reported in the July-September period.

Same-store sales are an indicator of organic growth as it measures sales growth at stores open for at least a year.

The retailer had posted a 6.3% decline in same-store sales in the first quarter.

Mr. Shrikhande expects high single-digit growth in same-store sales in the next financial year, but said returning to a double-digit growth might not be possible.

Shoppers Stop, which reported a net loss in the year ended March 31, 2009, is now witnessing a turnaround as it has exited its unprofitable catalog retail and food and beverages businesses, and has reduced its operating and financing costs.

The retailer swung to a net profit of 120.6 million rupees for the second quarter ended Sept. 30 from a net loss of 110.2 million rupees a year earlier. Retail revenue rose 11% to 4.13 billion rupees in the same period.

Mr. Shrikhande said the company will open one Shoppers Stop store this quarter and two in the next quarter, which will also see the opening of two Crossword book stores.

The company currently operates 28 Shoppers Stop department stores and 53 Crossword book stores. It had nine M.A.C cosmetics stores, four HomeStop stores for selling furniture and home decor products, and 22 Mothercare stores for selling maternity and infant products.

Mr. Shrikhande said Shoppers Stop could use a part of the funds for buying a majority stake in associate company Hypercity Retail (India) Ltd.

Shoppers Stop, which acquired a 19% stake in Hypercity in March 2007, can buy up to 51% of Hypercity from its founders as per an option agreement. It has time till June 30 to buy the additional 32% stake in Hypercity.

Mr. Shrikhande said the company’s board is yet to decide on whether it will raise its stake in Hypercity, which runs large-sized stores that sell everything from fresh groceries to consumer durables.

The proposed fundraising will help also in lowering interest costs as part of the money will be used for working capital needs, Mr. Shrikhande said.

He added that while the company will be conservative in its hiring plans, it may take a decision in the next financial year on whether to reinstate the 10%-15% salary cut taken by the top management.

Source: The Wall Street Journal

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