Future Retail Ltd’s same- store sales growth for the March quarter at 11.2% represents a smart improvement from the growth seen in the first three quarters of FY19. The retail company saw good momentum in its large- format store, Big Bazaar, where same-store growth for the quarter came in at 13.6%.
Overall, Future Retail’s revenue increased by nearly 18% year-on-year to ₹5,397 crore. This growth looks good in the light of the overall consumption slowdown witnessed in the economy. However, even as same-store growth is encouraging, increasing debt is a sore spot. According to the company’s investor update, as on 31 March, net debt stood at ₹2,301 crore, rising almost ₹1,260 crore over the year-ago period.
Commenting on the increase in debt, analysts from Edelweiss Securities Ltd wrote in a report on 27 May: “While management has cited higher capex and inventory for new stores, it was also to do with tighter liquidity conditions and thus supporting the vendors."
Needless to say, investors will keep a close eye on the debt situation closely in the coming days. During the March quarter, interest costs increased by 32% over the same period last year.
However, overall profit growth wasn’t disappointing. Ebitda (earnings before interest, tax, depreciation and amortization) margins expanded by 98 basis points to 5.4%. This is not bad at all, considering gross margins had declined marginally. A basis point is 0.01%. Ebitda performance was helped by the relatively slower pace of growth in rent expenses.
With other income also rising, pre-tax and exceptional item profit saw a robust 45% increase to ₹203 crore.
In FY19, the company added 476 stores across its formats, with most stores being added in the small-format category such as Easyday. As on 31 March, it had 1,511 stores, including 292 Big Bazaar outlets.
So far this calendar year, Future Retail shares have underperformed the Nifty 500 Index. Still, at 26 times estimated earnings for FY20, valuations are not exactly cheap. Of course, improvement in consumer sentiments remains crucial for retailers in general and Future Retail is no exception.
Further, how the forthcoming end-of-season sale shapes up would go a long way in determining profits. Consistent improvement in operating parameters could well aid valuation expansion going ahead, say analysts.