Buy Future Retail; target of Rs 512: Prabhudas Lilladher

Prabhudas Lilladher's research report on Future Retail

We cut our EPS estimate of FY20 and FY21 by 5.8% and 7.7% respectively of which 4.5% is due to impact of IndAS 116. FRL has sustained growth momnetum in the challenging environment mainly led by small format stores which grew sales by 50% YoY with 11.3% SSG in 1Q led by improved and efficient product assortments and higher product availibilty despite non-performance in the sothern market. We remain positive on FRL led by 1) strong growth momentum in small format stores with reduction of losses to -2% in 1Q from 3.5% in 4Q (expected breakeven in exit of FY20) and 3) expected improvement in cash flows post acquisition of store infra from FEL.

Outlook

We estimate PAT growth of 20.1% in FY20 and flattish in FY21 due to tax impact (33.7% PBT CAGR) over FY19-21 and value the stock at Rs512 based on 30xFY21EPS. Maintain BUY.