After announcing the partnership with Amazon,the stock of Future Retail (FRL) has been trending up over the last couple of trading sessions gaining 5 percent .That will expand the offline and online presence of both entities.They also announced that it will raise debt worth $500 million to fund the purchase of infrastructure assets from Future Enterprises (FEL).The both announcements have been perceived positively by the market.
The FRL long-term agreement with Amazon India,which will help expand the reach of the former's retail outlets as well as give a platform for its consumer brands that are housed under future consumer and this will make Amazon India the online sales channel for Future Retail stores.
The Analysts at Morgan Stanley believe this is a win-win arrangement arising from a hybrid retail model that will help Amazon lower the cost of fulfillment , given FRL's large store footprint.For Future consumer,the deal with Amazon will help build an online distribution channel and increase the share of ales from outside the Future Group network.
Amazon's 49 percent stake in FCL will mean it will own 4.9 percent after the conversion.The net debts is expected to go up to just under Rs.2000 crore.This will lead to an increase in net debt to operating profit moving up to 1.4 times financial year 2020-21 estimates,while return on capital employed is expected to go down five percentage points to 13 percent.
Unlike Aditya Birla Fashion Retail, Trent and Avenue Supermarts that have delivered returns upwards of 15 percent in calendar year 2019,Future retail has underperformed shedding nearly quarter of its value last year.At the current price,the stock is trading at an attractive 19 times its FY21 earnings estimates and eight times enterprise value to operating profit.However investors need a long term horizon as the near term could see soft operating performance.
Macroeconomic slowdown,shifting of festival sales to September quarter and aggression by online e-tailers are expected to keep Future Retail's same store sales growth for the December quarter at the lower single digits.
The FRL long-term agreement with Amazon India,which will help expand the reach of the former's retail outlets as well as give a platform for its consumer brands that are housed under future consumer and this will make Amazon India the online sales channel for Future Retail stores.
The Analysts at Morgan Stanley believe this is a win-win arrangement arising from a hybrid retail model that will help Amazon lower the cost of fulfillment , given FRL's large store footprint.For Future consumer,the deal with Amazon will help build an online distribution channel and increase the share of ales from outside the Future Group network.
Amazon's 49 percent stake in FCL will mean it will own 4.9 percent after the conversion.The net debts is expected to go up to just under Rs.2000 crore.This will lead to an increase in net debt to operating profit moving up to 1.4 times financial year 2020-21 estimates,while return on capital employed is expected to go down five percentage points to 13 percent.
Unlike Aditya Birla Fashion Retail, Trent and Avenue Supermarts that have delivered returns upwards of 15 percent in calendar year 2019,Future retail has underperformed shedding nearly quarter of its value last year.At the current price,the stock is trading at an attractive 19 times its FY21 earnings estimates and eight times enterprise value to operating profit.However investors need a long term horizon as the near term could see soft operating performance.
Macroeconomic slowdown,shifting of festival sales to September quarter and aggression by online e-tailers are expected to keep Future Retail's same store sales growth for the December quarter at the lower single digits.
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