MOSL: FUTURE LIFESTYLE FASHIONS (Buy)-Earnings growth moderates-continues to steadily add stores
FUTURE LIFESTYLE FASHIONS: Earnings growth moderates; continues to steadily add stores
(FLFL IN, Mkt Cap USD1.3b, CMP INR451, TP INR575, 28% Upside, Buy)
- Pre-Ind-AS 116 EBITDA up 13% YoY: On a pre-Ind-AS 116 basis, FLFL reported an in-line performance in 1QFY20. Revenue rose by a healthy 17% YoY, driven by 23% YoY growth in Brand Factory. EBITDA grew 13% YoY, with the margin contracting 30bp YoY to 8.7% due to higher SG&A. PAT declined 15% YoY to INR313m; the decline was higher at 26% YoY to INR274m (16% miss) including the loss of INR39m from associates/JVs. On an Ind-AS 116 basis, revenue was up 17% YoY and PAT excluding associates/JVs was down 23% YoY to INR284m.
- SSSG moderated to 5% YoY in 1QFY20 from 8% YoY in 1QFY19 and 9% QoQ in 4QFY19. Brand Factory SSSG moderated from double-digit in FY19 to 2.5% in the quarter. Central reported better SSSG of 7% compared to the same period last year. For FY20, we estimate SSSG of 6%/8% at Central/Brand Factory.
- Healthy store adds in Brand Factory to drive growth: Central added three stores (overall count 47), while Brand Factory added four stores (added six but closed two; overall count 97) in 1QFY20. However, we expect the company to accelerate the pace of store addition at Brand Factory going ahead – we factor in addition of 30 Brand Factory stores and 5 Central stores in FY20. We estimate revenue CAGR of 18% over FY19-21, led by the healthy performance of own brands. Based on our workings, the impact of Ind-AS 116 is likely to be INR100-120m at the PAT level. Subsequently, we cut our FY20/21 PAT estimate by 6%/4%. We expect revenue/adj. PAT CAGR of 21%/28% over FY19-21.
- Valuation and view: We adjust our target price and EV/EBITDA multiple based on Ind-AS 116 workings. Subsequently, we assign 7.5x EV/EBITDA on FY21 EBITDA of INR14.3b to arrive at a target price of INR575 (prior: INR585). At our TP, it is valued at an implied P/E of 41x on FY21, in line with the three-year average P/E multiple. Maintain Buy.
Future Lifestyle Fashions Ltd is an India-based integrated fashion company. The Company's portfolio consists of fashion brands that cover the entire gamut of sub-categories including formal menswear, casual wear, active or sportswear, women's ethnic wear, women's denim wear, women's casual wear, footwear and accessories. The Company primarily operates through its retail outlet destinations: Central, which is a large-format stores that offers over 500 domestic and international branded apparel and accessories across several categories; and Brand Factory, which operates as a chain of fashion discount stores. Merchandise available at Brand Factory stores include men's formals, casuals, youth wear, women's western wear, women's ethnic, sportswear, infant wear, accessories, footwear, luggage and operates over 41 stores across 20 cities in India. Its offered brand includes Lee Cooper, Indigo Nation, Bare Casuals, Scullers, John Miller, Converse, Umbro, SPUNK and URBAN Yoga.
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