Motilal Oswal - Future Retail (FRETAIL) MOSL: FUTURE RETAIL (Buy)- Amazon to acquire 3.65% stake

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Motilal Oswal

Aliasgar Shakir

EUR 120.00 For Business Accounts Only

MOSL: FUTURE RETAIL (Buy)- Amazon to acquire 3.65% stake

FUTURE RETAIL: Amazon to acquire 3.65% stake

(FRETAIL IN, Mkt Cap USD2.7b, CMP INR390, TP INR550, 41% Upside, Buy)

E-commerce giant Amazon has agreed to make an investment to acquire a 49% stake in Future Coupons (FCL), which holds a 7.3% stake (39.6m shares) in Future Retail (FRL). This implies that Amazon would gain a 3.5% beneficial stake in FRL.
It did not disclose the deal value; however, we estimate it to be at a significant premium to INR505 - the price at which FRL issued warrants to FCL in Feb'19. This potentially values the deal at ~INR15b.
Amazon has an option to buy the complete promoter stake, which can be exercised between the third and tenth year under certain circumstances.
The e-commerce behemoth holds right of first refusal (ROFR) for additional stake and has placed restriction for any incremental share transfer in FRL.
Amazon investment could clean up related-party holdings/transactions with Future Enterprise (FEL) to the tune of INR40b.
The stock trades at ~12x EV/EBITDA (pre-Ind-AS 116 basis) on a one-year forward basis, much below peers.
Amazon's 3.65% stake remains insignificant, but we believe that the call option to buy more and a board observer seat through Future Coupons should allay minority investor concerns in FRL.

26/08/2019 1 EN

Underlying

Future Retail

Future Retail Limited is an India-based company, which is engaged in the business of retailing a range of household and consumer products through departmental store facilities under various formats. The Company is primarily engaged in the business of multi-brand retail trade. The Company has access to approximately 20 compact hypermarket easyday stores and over 210 supermarket easyday stores. Its retail formats primarily consists of value business and home business. In its value business, the Company formats include Big Bazaar, a hypermarket format; Food Bazaar, a supermarket; fbb, a fashion destination; Foodhall, a supermarket, and easyday convenient stores. In its home business, the Company operates Home Town, a one-shop destination for home improvement, and eZone, a consumer durable and electronics chain.

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INE752P01024 National Stock Exchange of India India

Provider

Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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Analysts

Aliasgar Shakir

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MOSL: FUTURE RETAIL (Buy)- Amazon to acquire 3.65% stake

Thanks to a better fundamental star rating, FUTURE RETAIL sees an upgrade to Neutral

Future Retail Ltd: 1 director sold

MOSL: FUTURE RETAIL (Buy)-Focus on profitability drives bold steps

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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