Sell Future Retail; target of Rs 90: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com`s research report on Future Retail“Future Retail (FRL) reported revenues of | 2,317.2 crore, marginally lower than our expectation of | 2,480.0 crore. The total operational space stands at 10.4 million square feet (mn sq ft) (I-direct estimate: 10.5 mn sq ft). The company reported a gross margin of 28.2% (up 92 bps YoY) as against our estimate of 26.5%. The operating margin at 10.5% (up 195 bps YoY) was also ahead of our estimate of 8.3%. High interest costs continue to dent the profitability. FRL reported a PAT of | 66.5 crore owing to profit on sale of stake in Capital First.” “FRL has announced multiple stake sales in order to reduce the mammoth debt burden. It sold stake in its flagship Pantaloon’ format and divested stake in the insurance ventures for want of funds. While other formats are far more comfortably leveraged (Future Lifestyle & Future Consumer Enterprises), Future Retail still sits on a debt of ~| 5,500 crore. In June 2014, the FRL has now announced fund raising plans to the tune of | 2,000 crore and it intends to utilise ~75% of the proceeds there from towards reduction of debt. Apart from this, better working capital management could boost cashflows thereby aiding faster debt reduction. Considering the slowdown in the economy and the consciously lower space addition, the company will be able to achieve revenue growth only through healthy same store sales growth (SSSG). In Q1FY15, the company reported an SSSG of 9.2% and 5.5% in the value and home segment, respectively. A revival in SSSG will not only help the company achieve revenue growth but also help it enhance profitability and, thereby, in bringing down debt. We expect SSSG to hover in the 5-8% range for FY15E and FY16E.” “FRL is one the largest retail players. However, in the quest to achieve this, the company has had to suffer on the balance sheet front. Mounting debt and inventory levels have impacted the profitability of the company. While the recent restructuring has aligned the balance sheet of the other business, FRL still remains under the burden of heavy debt. It has recently announced fund raising plans which would lead to dilution. Like the many attempts made in the past, we hope this too does not go in vain and the company is actually able to lower the debt levels. We have a cautious outlook and thereby downgrade Future Retail to SELL considering the recent rally in the stock. We revise our target price to | 90 (0.6x FY16E EV/Sales, 25% discount to Shoppers Stop),” says ICICIdirect.com research report.    

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