A shopper walks through an aisle displaying personal care goods at a Big Bazaar hypermarket, operated by Future Retail Ltd., in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Here’s Why Motilal Oswal Sees 50% Upside In Future Consumer

Shares of Future Consumer Ltd. rose as much as 11 percent after brokerage Motilal Oswal rated the stock a new 'Buy' citing favourable growth scenarios that include recent brand initiatives and footprint expansion.

The brokerage firm initiated coverage on the Future Group’s sourcing-to-supermarket food company with a ‘Buy’ rating, expecting the stock’s price to reach Rs 76 within 12 months. This implies a rise of 50 percent from yesterday’s close.

Motilal’s Outlook

  • Huge opportunity in Indian FMCG space, which is expected to grow at a compounded annual growth rate of 13-14 percent to reach $220-240 billion by 2025.
  • Factors such as push towards cashless transactions, demonetisation and goods and services tax, augur well for companies with modern retail models.
  • The Future Group plans to open 10,000 EasyDay stores by 2022 and 350 Big Bazaar stores over the next three to five years.
  • Future Group increasing presence of in-house brands in its retail stores to augur well for the company as 95 percent of the company's sales are derived from the brand portfolio.
  • Overall portfolio dominated by branded staples and fruits and vegetables, which are relatively low margin categories but may see healthy growth. Thus, margin expansion will be driven by processed food category
  • Lower sales and advertising costs to drive Future Consumer's profitability and return ratios going ahead.

Out of the four brokerages covering the stock, three have ‘buy’ and one has a ‘hold’ rating. Its currently trading around 30 percent below the Bloomberg consensus one-year target price.