Future Group stocks soar on hopes of more partnerships

MUMBAI: Shares of Future Group companies gained on Thursday following the Walmart-Flipkart deal, riding hopes that the deal would spur more online-offline partnerships in India’s retail sector.

After clocking intraday gains of 5-17%, shares of Future Lifestyle Fashion Ltd, Future Retail Ltd, Future Consumer Ltd and Future Enterprises Ltd closed 2.11%, 4.67%, 3.87% and 8.97% higher, respectively, on BSE a day after the world’s largest retailer Walmart Inc. agreed to buy 77% of online retailer Flipkart for $16 billion.

According to Edelweiss Securities Ltd, the deal values Flipkart at 4.5 times FY18 enterprise value/sales. “Though this may look expensive on absolute basis, the valuation is at a discount to that of Avenue Supermarts and at a significant premium to that of Future Lifestyle Fashions, Future Retail and Shoppers Stop—our preferred picks in the retail sector. This merger... reiterates our conviction of a boom in domestic organized retail sector, which is estimated to catapult to $115 billion by FY20 from $55 billion in FY16, higher than 20% compound annual growth rate (CAGR),” it said in a 9 May note.

As per Edelweiss estimates, the valuation of Avenue Supermarts stands at 6.1 times of FY18 EV/sales while that of Future Lifestyle Fashions is at 2 times FY18 EV/sales and Future Retail is at 1.5.

The brokerage said the Walmart-Flipkart deal is envisaged to change the domestic retail industry as online and offline tieups may get a fillip, and online discounting may not necessarily increase as Walmart may drive private labels rather than focus only on gross merchandise volume (GMV) while FMCG firms may benefit as Walmart’s expertise lies in hypermarkets and grocery retailing.

Prabhudas Lilladher Pvt. Ltd believes that after the deal, there could be further consolidation in the organized retail space.