Buy Future Retail; target of Rs 613: Prabhudas Lilladher

Prabhudas Lilladher's research report on Future Retail

We are cutting FY19 and FY20 EPS estimates of FRL by 6%-9% following lower than expected profits in 1Q due to 1) lower sales due to impact of GST, Ezone and Hometown in base and Hypercity renovation 2) Pressure on small stores SSG due to deflation in foods (35% of revenue) and staples 3) higher than expected deprecition and interest following HyperCity and other acquisitions. Big Bazaar susatined double digit SSG at 10.1% (calculated on gross sales), however it softened 90bps QoQ and 580bps YoY. Easy day (13% of sales) reported higher Gross Margins and addition of 0.12mn members in savings club, losses sustained due to expenses on ramp up. Although we expect Hypercity to turn EBIDTA positive from 2H, PAT contribution will materialise post FY19.

Outlook

We estimate 30.5% PAT CAGR over FY18-20 and value the stock at Rs 613 based on 30xJune FY20EPS (Earlier Rs.682 on 30xFY20 EPS). Retain Buy.