Published on 13/11/2017 4:35:44 PM | Source: Emkay Global Financial Services Ltd

Buy Future Lifestyle Fashions Ltd For Target Rs.495.00

Posted in Broking Firm Views - Long Term Report | #Broking Firm Views Report #Quarterly Result #Emkay Global Financial Services Ltd. #Future Lifestyle Fashions Ltd


* Results ahead of estimates despite muted SSG – Consolidated revenues at Rs 11.2bn, up 10% yoy; EBITDA up 19% yoy while EBITDA margins up 70bps to 9.3%; Higher rise in depreciation (adjustment in the base quarter) resulted in APAT of Rs 303mn, up 3%

* Central SSG at 4%, Brand Factory SSG at 13.5%, while overall FLFL SSG stood at c4%. Licensed brands outperformed the pack growing at 17% yoy led by Lee Cooper and John Miller. Third party brands grew at a steady 13% yoy

* Apt positioning and merchandise mix is expected to help the company sustain SSG of c.10% going forward. We expect revenue CAGR FY17-20E of 18.3%. We expect EBITDA margins to inch up to 10.4% by FY20E led by improved mix and operating leverage

* We have upped our EPS estimates by 7%/4.8% owing to a lower depreciation guidance and we have introduced FY20 estimates. We maintain our BUY rating with a price target of Rs 495/share (18x FY19E EV/EBITDA)

Results ahead of expectation; SSG impacted by shift in EOSS

Future Lifestyle Fashions Ltd (FLFL) reported results ahead of our expectations on the back of a strong growth in Brand Factory and network expansion. Key highlights: 1) Consolidated revenue at Rs 11.2bn, up 10% yoy, despite a 4% overall SSG and shift in end of season sale (EOSS) to Q1FY18. Central and Brand Factory reported SSG of 4% and 13.5% respectively. 2) Lower discounted sales helped boost gross margins by 120bps to 36.4%. EBITDA margin expansion was curtailed to 70bps at 9.3% led by higher employee costs and other expenses. EBITDA at Rs 1bn, up 19% yoy. 3) APAT at Rs 303mn, up 3% yoy, impacted by higher rise in depreciation (IND AS adjustment in the base quarter led to the drastic % rise).

Growth momentum to sustain going forward; Maintain BUY Despite the SSG getting impacted by the shift in the end of season sale (EOSS), the growth was boosted by network expansion. FLFL increased their retail presence by 4.4% yoy to 5.5mn sqft. We expect the company to increase their retail network by 10% during FY18E. Additionally, the company was recently rated by CRISIL as AA- with a positive outlook. Apt positioning and merchandise mix is expected to help the company sustain SSG of c.10% going forward. We expect revenue CAGR FY17-20E of 18.3%. We continue to remain positive on FLFL given its vast retail presence and strong brand portfolio. We believe that increased focus on owned/licensed brands will provide a fillip to overall margins and profitability. We expect EBITDA margins to inch up to 10.4% by FY20E led by improved mix and operating leverage. We have upped our EPS estimates by 7%/4.8% owing to a lower depreciation guidance and we have introduced FY20 estimates. We maintain our BUY rating with a price target of Rs 495/share (18x FY19E EV/EBITDA).

 

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