Buy Future Retail; target of Rs 650: Axis Direct

Axis Direct's research report on Future Retail

After a series of acquisitions in the small stores format, recent HyperCity acquisition will help Future Retail (FRL) to further strengthen its leadership position in modern retail. HyperCity fits perfectly into FRL’s premium Big Bazaar GenNxt format and grants it access to key store locations in metros and a loyal customer base. We expect FRL to improve HyperCity’s performance given its scale, sourcing capability, back-end expertise and strong private labels (including fbb format).

Outlook

We now estimate 20% revenue CAGR over FY17-20 (double-digit SSSg at Big Bazaar, addition of HyperCity, fbb gaining share in high-growth value fashion category and rapid expansion of EasyDay convenience store format) and 140 bps EBITDA margin expansion to 4.8% in FY20 (rising share of private label and positive operating leverage). Maintain BUY with TP of Rs 650 (Rs 560 earlier) based on 28x target P/E.