Revenue growth expected to pick up for remainder of the year; ‘Buy’ maintained with revised TP of Rs 69
Future Consumer’s (FCL’s) reported net sales grew 26.9% y-o-y to Rs 8.4 bn (estimate of Rs 9.4 bn) in Q1FY19. Ebitda increased 133.4% y-o-y to `201 mn (estimate of `255 mn). The company reported a loss of `61 mn (estimate of a profit of `74 mn), which narrowed from a loss of Rs 102 mn in Q1FY18.
Centre of Plate portfolio grew just 19% in Q1FY19. Deflationary environment in Pulses portfolio is expected to have impacted realisation. Fruits & Vegetables portfolio grew by 67% y-o-y, Processed foods portfolio grew by 33% y-o-y, and Home & personal care portfolio grew by 40% y-o-y.
Gross margin expanded 10bp y-o-y (+110bp q-o-q) to 14% (estimate of 15.4%). Lower other expenses (-110bp y-o-y) and staff cost (-10bp y-o-y) led to Ebitda margin expansion of 110bp y-o-y (+30bp q-o-q) to 2.4% (estimate of 2.7%).
Valuation and view
We expect revenue growth to pick up for the remainder of the year, with the momentum continuing thereafter for a few years, given the tremendous growth opportunity. We expect revenue CAGR of 35.9% over FY18-20 and 35.2% over FY18-22. As Future Consumer Ltd is likely to be profitable at the consolidated net level only in FY19, we believe that the near-term P/E multiples are always likely to appear extremely expensive on a one-year forward basis. We, thus, value the company on an EV/sales basis, assigning a multiple of 2x (60% discount to EV/sales of our coverage staple universe). This results in a target
price of `69, implying 48% upside from current levels. Maintain Buy.
As soon as the company demonstrates profitability at the net level, we will move our valuation to a P/E basis.
Company description: Future Consumer Ltd operates as a food company. The company focuses on branding, marketing, sourcing, manufacturing, and distribution of basic foods, ready-to- eat meals, snacks,
beverages, and personal hygiene and home care products. The company has around 27 brands in over 65 categories; FCL is continuously working on expanding its portfolio. Future Consumer also has agri-sourcing operations in India.