"At current market price of Rs 560, the stock is valued at a P/E of 46x which is at a significant discount to its immediate listed peer. We expect a target of Rs 736 by FY19 end which implies an upside of 31 percent," says Akash Jain, Vice President - Equity Research at Ajcon Global.
Future Retail is the flagship company of Future Group, India’s retail pioneer catering to the entire Indian consumption space. Through multiple retail formats, the Company connects to Indian buyers, sellers and businesses. The collective impact on business is staggering: Over 500 million customers walk into its stores each year and choose products and services supplied by over 30,000 small, medium and large entrepreneurs and manufacturers from across India. This number is set to grow. The Company enjoys market leadership in the food and grocery retail market (market share of 13% in 2016).
The company has a total retail space of 13.8 million square feet with presence in 26 states and 240 cities with a total network of 901 stores at the end of FY17. A major realignment and consolidation exercise was undertaken to make FRL a asset light and a pure play retail company with strong presence in multiple formats – hypermarket and supermarket. In May 2015, the company acquired the supermarket format, Easy Day, from Bharti Group and enhanced its overall presence across the country. Recently it also acquired the retail operations of Heritage foods and expanded into Southern India. After the major restructuring, Future Retail is asset light Company and generates free cash flow.
a) Big bazaar
b) Easy day
d) Heritage Fresh
FBB stores are on rise which focuses on fashion side of the business. The company will be more aggressive in expansion of EasyDay and FBB as compared to Big Bazaar as these both segments have a vast opportunity and still has a large population to target.
The company has successfully realigned itself to have in place an asset-light model with better return ratios. It is one of the few players to have successfully cracked this model along with being profitable. Increasing competition from both brick and mortar and online players could impact overall SSSG of FRL. Competition from online delivery players, such as, bigbasket.com. grofers.com, Amazon etc., remains a key threat.
The Future Group’s target now is to become USD 1 trillion company by 2047 by blending online and offline retail to provide seamless experience to consumers. Its strategy is to address the issue of high logistics cost and prohibitive acquisition cost in e-commerce via proximity of physical stores to customers (within 2 km radius) and loyalty programmes (10 percent discount on all products).
The company has tied up with best technology provider in the world (google and Facebook) to leverage consumer data to enhance customer experiences. At current market price of Rs 560 (Face Value: Rs. 2), the stock is valued at a P/E of 46x which is at a significant discount to its immediate listed peer. We expect a target of Rs 736 by FY19 end (46x on FY19 EPS) which implies an upside of 31 percent.