Buy Future Retail; target of Rs 619: Edelweiss

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26 Aug, 2025 12:21

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Edelweiss' research report on Future Retail

Future Retail (FRL) has bought HyperCity including Shoppers Stop’s (SSL) stake (51.09%). We expect the deal to be a win-win proposition for both players. FRL will gain access to prime locations in metros (an issue due to slow mall development; incrementally negative for D-Mart) and HyperCity’s private labels. The company can easily turn HyperCity (likely to be rebranded Big Bazaar NXT) profitable in the first year (-1.5% EBITDA margin in FY17) itself by enhancing apparel share (~35% gross margin), pruning headquarter cost and boosting synergy benefits. HyperCity’s EV at INR9,110mn (0.78x FY17 EV/sales versus 2x for TESCO deal in CY14) is positive for FRL. The Future Group had earlier bought Bharti Retail, Heritage Retail (At Fresh), Big Apple and Nilgiri, consolidating its position in modern retail. Maintain ‘BUY’.

Outlook

On sustained strong SSG, improving margin and better inventory turns, we estimate ~690bps jump in RoE to 23.5% over FY17-19. We maintain ‘BUY/SO’ and revise our target multiple to 30x FY19E EV/EBITDA (earlier 25x) and arrive at TP of INR619 (earlier INR516) aided by synergy benefits and increase in market share in prime location. At CMP, the stock trades at 21.4x FY19E EV/EBITDA.

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