YES Securities's research report on Future Retail
Future Retail Ltd. (FRL) announced acquisition of HyperCity Retail (India) Ltd. valuing the company at INR 9.1bn Enterprise Value (EV). The transaction will include combination of equity (INR 5bn), cash (INR 1.55bn) and debt (INR 2.56bn). The transaction is valued at 0.76 EV/Sales which is reasonable to our view at most of the global players are being valued at 0.8-1.5x EV/Sales TTM. HyperCity is loss making entity at EBITDA level however company had turned profitable at store level reporting INR 69mn store level EBITDA in Q1FY18. We expect HyperCity to turn positive on EBITDA in FY20E aided by high synergy between Big Bazaar and HyperCity thus curtailing the HO overheads and introduction of FBB and private labels in Food will help improving the gross margin profile of the company. We maintain our ACCUMULATE on the stock with a TP of INR 630/share and value the company at 22x FY20E EPS.
Outlook
We retain ACCUMULATE on FRL with revised TP of INR 630 based on a multiple of 22x FY20E EPS.
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