MOSL: FUTURE RETAIL (Buy)-Growth trends steady-ownership clean-up – a key trigger
FUTURE RETAIL: Growth trends steady; ownership clean-up – a key trigger
(FRETAIL IN, Mkt Cap USD3b, CMP INR413, TP INR550, 33% Upside, Buy)
- Showing consistency in SSSG, margin improvement: FRL reported revenue growth of 14% YoY (in-line) to INR52.3b in 1QFY20. EBITDA grew 20% YoY to INR2.7b on a pre-Ind-AS 116 basis (reported EBITDA at INR6.3b), with margin improving 30bp YoY to 5.1% led by healthy SSSG of 8.3% YoY. PAT (pre-Ind-AS) grew 11% YoY to INR1.7b (reported growth of +6% YoY, implying an impact of INR75m from the accounting change).
- Healthy trends at Big Bazaar; Easyday WIP: Big Bazaar (BB) recorded steady SSSG of 8.1% with three store additions (BB and FBB). In our view, BB grew revenue/EBITDA at 8%/18% YoY, led by healthy margin improvement. Separately, Easyday delivered strong 34% revenue growth, led by 11% SSSG and 44 store adds (total store count: 1,150). Yet it recorded an estimated loss of INR302m (margin down 3.5%) at the EBITDA level.
- Expect steady growth to continue: We expect FRL to add 15/10/200 new BB/FBB/Easyday stores over FY20-21, with 9% SSSG for BB. Making adjustments to account for Ind-AS 116 changes, our EBITDA estimates have doubled, but revenue/PAT estimates remain unchanged. We expect revenue/PBT CAGR of 13%/27% over FY20/21. PAT estimated to grow at 7% on inclusion of MAT.
- Maintain TP of INR550; ownership clean-up - a key trigger point: FRL has exhibited consistency in terms of SSSG and EBITDA margin improvement. Recent announcement of promoter warrant issue and plans to buy back assets from FEL may clean up the ownership structure. This should address investor concerns and lend support to valuations, in our view. We ascribe 9x EV/EBITDA on FY21E basis (post Ind-AS 116 adjustment), arriving at a target price of INR550 (unchanged). Maintain Buy.
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.
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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