Investor's Eye
[September 27, 2013] | | |
| Summary of Contents
VIEWPOINT Future Lifestyle Fashion Branded garment play; likely listing at mcap of Rs1,200-1,500 crore After the sale of the Pantaloons format to the Birla group, the Future group has merged all the fashion and branded businesses of erstwhile Pantaloons and certain fashion brand investments of Future Ventures into a separate entity named Future Lifestyle Fashions Ltd (FLFL). We met the management of the new entity to understand its portfolio and plans for the future. The FLFL stock would get listed once the regulatory formalities are completed. It could make its debut at a multiple of 9-10x (market capitalisation of Rs1,300-1,500 crore). We present below the key takeaways from our meeting. -
FLFL is an aggregation of fashion brands, distribution channels and fashion investments. The company comprises Central (a seamless mall, with a department store lay-out, selling in-house as well as third-party brands), Brand Factory (fashion discounter, sells branded products with discounts throughout the year), aLL (an exclusive format, targeting plus-sized customers across age groups), Planet Sports (a multi-brand sports lifestyle retail chain), 200 exclusive brand outlets (EBOs), and investments in third-party brands using third-party distribution networks (multi-brand outlets [MBOs], national chain stores etc) for brand distribution. Valuations -
FLFL is a brand-oriented fashion business (apparel brands as well as store brands) and hence is directly comparable to Shoppers' Stop (a department business) and Raymond (a brand play). Based on the management interaction and our basic analysis, we believe the company is likely to clock Rs3,000 crore turnover for FY2014. On this top line an EBITDA of 10% would translate into Rs300 crore of operating earnings for the year. We assume enterprise value/EBITDA of 9-10x (a 50% discount to Shoppers' Stop's multiple as Shoppers' Stop's accounting policies are conservative and it also has the value of Hypercity embedded in its valuation). We believe that the fair market capitalisation for FLFL is in the range of Rs1,200-1,500 crore. -
With 15 crore outstanding equity shares, the fair value per share of FLFL works out to Rs80-100.
SHAREKHAN SPECIAL Monthly economy review Central banks deliver surprise; bond yields and rupee remain volatile
September of 2013 was quite an eventful month with a mixed set of surprises on both the macro-economic data front and the monetary policy front. Two key central banks, the Reserve Bank of India (RBI) and the US Federal Reserve (Fed), surprised the markets with the former raising the repo rates and sending out hawkish signals, and the latter deferring the tapering of stimulus measures and singing a dovish tune. The macro-economic data released during the month also surprised the markets since the Index of Industrial Production (IIP) growth was higher than estimated and inflation too surprised negatively. The trade data continued to sooth the markets and together with the RBI's measures (easing of foreign exchange [forex] borrowings) and global events offered respite to the rupee, which was amongst the worst performing currency in the previous month. Bond yields were quite volatile during the month (the yield curve remained inverted) and continued at elevated levels on expectations of firming up of interest rates and ballooning of the fiscal deficit. Key macro-economic data releases -
July IIP grew 2.6% largely aided by one-offs: In July 2013 the IIP grew by 2.6% (higher than estimated) largely due to a 336.0% year-on-year (Y-o-Y) spurt in the "cable, rubber insulated" products that lifted the growth in the capital goods segment to 15.2% YoY. The June IIP figure was revised upwards to 1.8%. -
Inflation flares up again led by food inflation: The Wholesale Price Index (WPI)-based inflation for August 2013 inched up to a six-month high of 6.10%. The sequential increase in inflation was largely attributed to the rise in the primary article prices (up 11.72% vs a rise of 8.99% in July 2013). The June 2013 inflation figure was revised upwards to 5.16%. -
Trade deficit narrows: India's trade deficit declined to $10.9 billion in August 2013 as compared with $12.3 billion in July 2013. It declined by 23.0% year on year (YoY) as the country's total exports grew in August 2013. In the same month, imports declined by 0.7% YoY (down 6.2% YoY in July 2013) to $37.1 billion while exports grew by 13.0% YoY to $26.1 billion. -
Repo rate hiked by 25 basis points, MSF reduced by 75 basis points: In its mid quarter policy review meeting the RBI surprised by raising the repo rate by 25 basis points and reducing the marginal standing facility (MSF) rate by 75 basis points. The commentary focused on anti-inflationary stance and on making the repo rate the operational interest rate. This raised the expectations of further rate hikes. -
Global macros-US defers tapering, tweaks growth forecasts: At the recent meeting of the Federal Open Market Committee the Fed deferred the much anticipated tapering programme due to soft patches in economic recovery. In addition, the US central bank trimmed the growth forecast for 2013 to 2.0-2.3% (2.3-2.6% in June 2013) and for 2014 to 2.9-3.1% (from 3.0-3.5% in June 2013).
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Regards,
The Sharekhan Research Team | |
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