Spencers Retail Undervalued retail story

What a move.

Lagging at around at 65 in novermber to 110 now. Was this the trigger ?

SPENCER RETAIL: CO SUBSIDIARY, IS EXPECTED TO REDUCE ITS DEBT IN DUE COURSE BY RS.100 CR || CO ALSO SAYS SALE OF A CERTAIN PART OF THE CO’S MINORITY STAKE IS UNDER CONSIDERATION

Reported on Nov 25

https://x.com/REDBOXINDIA/status/1728342703434338643?s=20

It was interesting to read the evolution of this thread over the last 5 years :slight_smile:

I was interested in SRL due to Nature’s Basket and checked out their results today

Markets clearly didn’t like their results today. Stock fell ~7% after earnings release.

Clearly, all the projections over Spencers being a deep value play based on the fact that its market cap was only a fraction of its EV did not work out (unless you somehow timed the absolute bottom).

While Nature Basket is a nice business (with margins close to 30%), it is a very niche business and I say this as happy customer. I think its market is pretty much ex-NRIs like me who miss these types of brands so cannot expect it to be a growth driver.

Spencers unit closed 47 stores in Q2 and underwent “cost optimization” which improved their EBITDA margins to 4.1% from 2.1% last year but still their EBITDA profit of 17cr is less than their debt servicing costs of 33cr.

Similar story with Nature Basket - they had a healthy 7.1% EBITDA margin last year but their EBITDA profit of 6 cr last year was overshadowed with their debt servicing costs of 9 cr.

(EBITDA margin fell to 0.4% this quarter due to new store openings so we’ll ignore them)

Their quarterly reports include do not include their balance sheets and cash flow statements but looking at the increasing financial costs line item on their income statements, I cannot imagine they are cash flow positive or reducing their debt.

Additionally, for some weird reason their investor presentation reports standalone, not consolidated numbers (all the figures presented above are standalone).

To me, the most serious questions is how the hell are they going to actually become cash flow positive and start paying off their debt which is the only road to profitability right now.

They’ve already closed several of their Spencer stores but everything seems to indicate that neither the Spencers nor Nature Baskets arms are cashflow positive.

When a company is systematically unable to turn a profit, its value must be assumed to be its liquidation value and it could even be overvalued now considering that it bumped up on a minority consideration sale rumour in Dec 2023.

*Disc: Not invested, decided to not track after analyzing it today :slight_smile: *

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Over last few quarters, Spencer has been modifying its strategy significantly it seems. With closure of multiple stores, concentration on majorly two geographies, stress on omnichannel presence in their leadership communications and now this clear launch of “Jiffy” as part of QC in its major market of Kolkata…They even talk of assessing the business and in future
opening more of only dark stores than physical retail…

I am not sure what to make out of all this but see that they are trying hard and sincerely to reach a sustainable business model. Clearly unsuccessful so far.

Not sure why they are not roping in top talent for such massive change of strategy. I maybe wrong here.

Anyone from Kolkata can comment on the progress of Jiffy going forward.

I think its only physical retail
company that ventured into real QC (VMM does home delivery but looks like not as part of a QC business model). Not sure if this is a result of years of unable to find sweet spot in physical retail and if this new turn would result in something better going ahead.

Thoughts welcome!

https://www.business-standard.com/amp/companies/news/spencer-s-retail-enters-quick-commerce-space-with-jiffy-as-growth-driver-125011601335_1.html

Disc: Invested at currently around 1% of portfolio. Transactions this week. Not a buy/sell recommendation. Post only for learning. I can be wrong in all my assessments.

Based on balance sheet and p&L of past 6 years.
This company should have been bankrupt or should have shut the shop.

Only reason it’s still floating is coz of the promoters deep pockets.

it hasn’t made profit in a single occassion over almost a decade .

What would be the rationale of being in a stock, where losses are swelling YOY, debt is piling up YOY, reserves/cash equivalents have been consumed.

Wouldn’t be surprised if company starts defaulting intrest payments.

No positions no intentions to buy unless turnaround.

1 Like

Agree, and that is the only reason to even look at this company.
Although not directly comparable but a deep pocket promoter can be an equivalent to easy PE money that many startups have or had access to….with a significant difference that PE looks for exit while promoters, if ethical and genuine, stays in the game longer.

Although again not directly comparable but equivalent to losses being made by numerous startups or new age businesses since years with a big difference….they are growing their revenues with significantly larger rates as compares to Spencers and hence larger losses as well.

Lastly, again not directly comparable but some such startups or new age businesses have current market cap of 2 lac crore + while Spencers is a three digit crore company.

And it could be rightly so as the risk of shutting shop maybe higher here as rightly pointed out by you and it all boils down to the intent and vision of promoters of this company. With recent communication on public domain and recent actions, intent seems to be PAT positive in couple years with significant shift in business model.

Whether it will work out, can’t say.

Disc: same as above

2 Likes

Problem is , it ain’t a new age tech, which is into losses coz of market penetration or market expansion.

It’s a kiryana shop, A kiryana shop, and a loss making one.

But totally agree with u, on the points u stated above.

U never know the turnover story and if one is caught at early stages, it makes u a lot of money.

Let’s hope it does.

We need to think here why new age companies are in race of super expansion at cost of everything….because that’s how they survive the PE game……so it may not be the need of the business but it maybe need of the founders and PEs……again I maybe wrong here.

So if Spencers launches Jiffy as QC….to me its business is equivalent to that of any new age QC company as long as it takes Jiffy sincerely and grows that business. I would not compare the growth rates of Spencers with that of a Fund hungry and PE dependent new age company….their models are different but the business arena is same and time will level up everything….

Again not comparing anything but to label a flagship retail company of Goenka group just as a Kirana when they acquired one of the best food retail I have seen in India, Natures Basket, from Godrej, then launched a world class hyper market in Mumbai, took bold steps of closing multiple stores and focus on just 2 markets, launched QC and strategic shift in business model….may not be factually best thing to do….

Again all above cannot save the company unless they find the correct sustainable business model.