While smallcap and midcap stocks have rallied in the year, a very few largecap stocks can claim to have tripled investor wealth since January. Shares of Future Consumer, which rallied by more than 15% today, has more than tripled investor wealth since January. The shares closed at Rs 67.35 on NSE this afternoon. Global research firm Morgan Stanley has initiated coverage on the shares with an “overweight” rating. Morgan Stanley has a target price of Rs 95 on the shares, implying an upside of more than 41% from the current market prices.
The global firm expects Future Consumer to be India’s fifth largest FMCG company by FY-21. “Future Group’s retail ecosystem yields a unique competitive advantage. Future Consumer can launch innovative products with a disruptive go-to-market strategy,” Morgan Stanley said.
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The brokerage house expects Future Retail to contribute over 90 percent of FY20 revenues against 74 percent in FY17. Revenues are expected to jump 3.2 times over FY17-20 and margin by 470 bps by FY20. “We think of Future Consumer as a start-up, building its business on the FMCG 2.0 platform— launching innovative products in emerging categories, leveraging digital assets, and focusing on consumer acquisition closer to the point of sale,” Morgan Stanley said.
Pointing out concerns in the company, Morgan Stanley notes that dependence on Future Retail store expansion for growth, the organisational capability to manage rapid growth, limited history of successful product launches in the home and personal care category, relatively high working capital deployment, and food safety control are the key risks for the firm. “It is the highest price target on the company so far, among the analysts tracked by Bloomberg,” said a Bloomberg report. Many top fund managers and market experts alike have voiced a preference to invest in largecap stocks going forward.
In an interview to CNBC TV18, Harsha Upadhyaya CIO-Equity, Kotak Mutual Fund said last week, “On valuation front, midcap is relatively higher compared to largecaps. As asset sizes increase, the challenge increases to find value in the space. However, funds which are mandated to invest only in midcaps will try to find opportunities within the space. Multicap portfolios where we can move across market capitalisations, our tilt is towards largecap.”