Buy Future Lifestyle Fashions; target of Rs 585: Motilal Oswal

Motilal Oswal's research report on Future Lifestyle Fashions

FLF showcased robust 4QFY19 performance with strong revenue/EBITDA growth. Revenue grew 29% YoY to INR13.8b (5% beat), driven by 8.6% overall SSSG, healthy footprint additions and growth in FLF’s brands. EBITDA grew 28% YoY to INR1.2b (9% beat) due to strong revenue growth. But, margins were flat YoY at 8.9%, as drop in gross margins (attributed to growth in the low margin Brand Factory (BF) format) were offset by operating leverage benefits. PAT at INR560m was up 166% YoY; however, adjusting for reversal of excess tax provision of ~INR350m, PAT stood flat YoY on high depreciation and low other income. FY19 revenue/EBITDA/PAT grew 27%/27%/50% YoY. BF driving growth: BF’s revenue share zoomed to ~35% (v/s ~27% YoY); while revenue jumped 61% YoY to INR4.8b due to healthy 13.1% SSSG (13.7% YoY, est. at 11.1%) and four store additions (est. at nine stores). Central’s revenue too grew at a healthy 14% YoY to INR7.2b backed by 6.5% SSSG (1% YoY); revenue share dropped to ~52% (v/s ~59% YoY).

Outlook

We maintain our Buy rating and unchanged TP of INR585, ascribing 14x (~10% premium to the 3-year average) EV/EBITDA.