Future Retail (FRL IN, Mkt Cap USD0.6b, CMP INR154, Under review) - Motilal Oswal

- Future Retail's 1QCY13 results were below estimates. Core retail PAT was down 83% YoY to INR20m (est INR74m). Net sales declined 2% to INR29.1b (est INR32.4b), while EBITDA margin stood at 8.6% (est 8.7%) as EBITDA fell 10% to INR2.5b (est INR2.8b). However, performance is not comparable YoY due to demerger of Pantaloon format.

- Same store performance improved, as expected. SSS growth was 9.6% for Lifestyle division, 8.1% for Value and -4.1% for Home division.

- Like-to-like gross space contraction during the quarter stood at 0.26msf as it rationalized space in Food Bazaar. Management expects further improvement in same store growth due to ensuing wedding season.

- Highlight of the quarter was turnaround in its electronics format - e-zone. The chain reported 27% same store growth and revenue growth of 43% to INR1.5b. This, as per the management, was a result of host of strategic initiatives undertaken in the last 18 months. Company is planning similar strategy for its Home Town format.

- Core retail debt stood at ~INR45b. For the Lifestyle format demerger and listing of new entity, FLF, company will take court's approval this month. On completion of deleveraging transactions, Future Retail's debt would be ~INR30b (transfer of INR12b debt to FLF, inflow of INR7b from insurance venture divestment, new capex).

- We will revise estimates, target price and rating, post management interaction. Our rating and TP is under review. Slowdown in discretionary consumption and worsening of consumer sentiments are key risks.

- Our indicative SOTP, after adjusting for Pantaloon's demerger, works out to INR210/share - we value the core retail business at 8x EV/EBITDA, Future Lifestyle Fashion at 10x EV/EBITDA (with 25% holding company discount) and other investments (Future Logistics, Staples etc) at book value.

Source : Equity Bulls

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