The Shoppers Stop Working Capital Analysis Finance Essay

Shoppers Stop is a retail shop concatenation. It is promoted by the K Raheja Corp. It was started in the twelvemonth 1991 with its first shop in Andheri, Mumbai. Shoppers Stop is a listed company in the Bombay Stock Exchange. By 2011, they had over 53 shops across different parts of India.

Shoppers Stop trades in broad assortment of merchandises which include dresss, footwear, leather merchandises, accoutrements, aromas and place merchandises. These are complemented by coffeehouse, nutrient, amusement, personal attention and assorted beauty related services.

Shoppers Stop launched its e-store with bringing across major metropoliss in India in 2008. The web site is a speedy point entree to all the merchandises available at Shoppers Stop shops.

Industry Background

The retail sector in India is turning at a phenomenal gait. Harmonizing to the Global Retail Development Index 2012, India ranks fifth among the top 30 emerging markets for retail. The recent development Foreign Direct Investment ( FDI ) forum, particularly leting 100 % FDI in individual trade names and multi-brand FDI has promised a immense encouragement to this sector.

There are several factors which can account for the growing in this sector. Some of them being increased capacity of consumers to pass on luxury points and increased buying power in the custodies of Indians. India has a really high ingestion rate and this is spread throughout the twelvemonth due to the diverseness in civilization, faith etc that promote passing on particular occasions which some at different times. Marriages, which are a large establishment in India, contribute to the retail spends to a big extent.

The retail sector in India is presently valued to be at around $ 450 billion. However, organized retail histories for merely 5 % of the market. Rating bureau Fitch expects the retail sector to go on with its current tendencies and says that growing driven enlargements and efficient working capital direction will positively impact this sector. The industry is estimated to turn at 10-12 % in the approaching twelvemonth.

Shareholding Pattern of Shoppers Stop

CATEGORY OFA SHAREHOLDER

NO. OFA SHARE-HOLDERS

Entire NO. OF SHARES

Shareholding of Promoter and Promoter Group

14

56,029,674

Public Shareholding

10,922

26,869,140

Entire

10,936

82,898,814

Public and keeping more than 1 % of the Total No.of Shares

No.

Name of the Shareholder

Entire Shares held

Shares as % of Entire No. of Shares

1

Reliance Equity Opportunities Fund

3,765,575

4.54

2

Originating Partners ( Asia ) PTE Ltd. A/c. Arisaig India Fund Ltd

2,646,877

3.19

3

Eastspring Investings India Equity Open Ltd

1,750,988

2.11

4

Miraj Marketing Company Pvt Ltd

1,856,250

2.24

5

Zodiac Clothing Company Ltd

1,713,750

2.07

6

Emerging Markets Growth Fund Inc

950,410

1.15

7

Vidya Investment & amp ; Trading Co Pvt Ltd

1,023,009

1.23

8

Reliance Regular Savings Fund – Equity Option

993,274

1.2

9

Bajaj Allianz Life Insuarance Company Ltd

952,853

1.15

A

Entire

15,652,986

18.88

Working Capital Ratios:

Shoppers Stop

Sl. No.

Particulars

31/3/

2007

31/3/

2008

31/3/

2009

31/3/

2010

31/3/

2011

31/3/

2012

Formulas

1

Inventory Turnover Ratio

8.05

6.70

9.06

10.09

9.70

9.39

Sales/Inventory

2

Receivable Turnover Ratio

39.38

42.46

42.90

126.45

70.64

84.10

Sales/Receivables

3

Payabless Turnover Ratio

6.87

5.65

4.97

5.76

6.32

7.08

Sales/Current liabilities

4

Inventory Period ( in yearss )

45.34

54.46

40.30

36.18

37.63

38.86

365/inventory turnover ratio

5

Receivables Period ( in yearss )

9.27

8.60

8.51

2.89

5.17

4.34

365/receivables turnover ratio

6

Payabless Period ( in yearss )

53.15

64.65

73.43

63.34

57.73

51.55

365/payables turnover ratio

7

Cash Conversion Cycle

1.47

1.58

24.62

24.27

14.93

8.35

( Inv TR+ Rec. TR ) – Payabless TR

8

Working Capital ( Rs Million )

995.2

8.60

767.3

1,060

928.10

663.2

CA-CL

9

Non Cash Working Capital ( Rs Million )

26.10

127.7

985.8

1,152.2

1,110.5

813.4

WC-Cash and bank balance

( Valuess in ruddy are in negative )

( Ratios calculated from informations extracted from Prowess )

Industry

Sl. No.

Particulars

31/3/

2007

31/3/

2008

31/3/

2009

31/3/

2010

31/3/

2011

31/3/

2012

1

Inventory Turnover Ratio

5.02

4.33

3.58

4.19

5.71

4.41

2

Receivable Turnover Ratio

81.34

55.21

35.06

24.80

24.43

17.34

3

Payabless Turnover Ratio

11.77

11.90

4.54

8.08

7.95

6.95

4

Inventory Period ( in yearss )

72.73

84.37

102.04

87.20

63.97

82.72

5

Receivables Period ( in yearss )

4.49

6.61

10.41

14.72

14.94

21.05

6

Payabless Period ( in yearss )

31.02

30.67

80.32

45.19

45.90

52.56

7

Cash Conversion Cycle

46.21

60.31

32.13

56.73

33.02

51.21

8

Working Capital

5,528.40

11,850.40

4,154.60

15,747.50

6,598.90

13,690.80

9

Non Cash Working Capital

3,243.10

8,039.50

1,987.60

12,758.90

4,539.00

8,416.60

( Ratios calculated from informations extracted from Prowess )

Analysis

The stock list turnover ratio is of import to understand the efficiency of the stock list direction system of a company. The stock list turnover ratio of Shoppers Stop is much higher than the industry criterion. This is a really good mark as it indicates that the company ‘s efficiency in pull offing stock list is first-class. This indicates that the company is non overstocking and therefore sing the type of industry it is in, it gives the company a competitory advantage as they will non confront the hazard of obsolescence of stock and besides this consequence in reduced retention costs.

Histories receivable turnover measures the efficiency of a concern in roll uping its recognition gross revenues. In comparing to industry benchmarks we can see that the Shoppers Stop started with a lower receivables turnover ratio but they surpassed industry criterions by manifolds over the last 5 old ages. The company therefore seems to be a really efficient in its aggregation policy. This is besides reflected in their reduced aggregation period which is a good mark. The company will non hold to worry about the hazard of default in recognition payments.

Histories collectible turnover is a step of short-run liquidness. The company has a much lower ratio when compared to the industry criterions. It indicates that the concern does non refund its providers rapidly. This demand non be necessary bad as it can be that the company has a good credibleness with its providers and therefore can pay after longer periods. However, this can besides set off possible providers as they may non be in favour of acquiring delayed payment. Shoppers Stop seems to be holding come near to the industry criterion in the old twelvemonth as this will guarantee that the company is attractive to providers and yet has the autonomy to pay a small late and can do good usage of its capital.

The on the job capital is a step of liquidness. Shoppers Stop ‘s liquidness state of affairs seems to be in a bad province. They have been demoing negative on the job capital for about the last 4 old ages. This seems to be a really curious state of affairs as the stock list, receivables and payables turnover ratio is in a good province. The ground for this is because the company is non able to bring forth its hard currency flows as fast as they are fluxing out of the organisation. Another possible ground for this seems to be because of liabilities other the payables that the company has been roll uping over the old ages.

The company has a negative hard currency transition rhythm. This is favourable for the company as this means that their hard currency is locked up for a lesser period. However, in the old ages of 2009 to 2011 they had a really short hard currency transition rhythm, which can bespeak that they had extra hard currency during the period and this may non hold been managed decently. They are making much better that the industry criterions. It can be inferred that the company is making really good in the industry and possibly giving its rivals a tough tally for their money.

Decision

Shoppers Stop is in a really good hard currency direction system. They have to nevertheless concentrate on their on the job capital place to convey it to a positive province. If non they can be in a job if their payables period falls or their receivables period additions due to alterations in certain factors outside the control of the company. Working capital place can be improved by increasing growing rate of company. If company does non put more money and addition net income, the same sum will increase in the hard currency place of company and with hard currency company can increase their on the job capital place.