Future Supply Chain’s (FSC) Q1 FY19 Ebitda of Rs 323 million (up 33% y-o-y) surpassed our estimate of 8% due to 11% revenue uptick. The latter is attributable to faster ramp up of foods business as well as traction in non-anchor clients. Key quarter highlight was improvement in working capital cycle — 35 days versus 43 in FY18. We believe, FSC is well geared to capitalise on the demand spurt for third party logistics (3PL). Q1 FY19 performance reflects business is gaining momentum. Onboarding of Haldirams, Crompton Greaves & Myntra and sharp jump in warehouse space addition — ~1mn in Q1 & 2.6mn in FY19 — reflects an upgrade potential. Maintain buy.
Revenue at ~Rs 2.27 billion (up 50% y-o-y) surpassed our 11% estimate. However, gross margin dipped 300 bps q-o-q to 31.7% due to faster ramp up in foods business as well under-utilisation of new capacity addition of ~1 million sq ft (full ramp up takes three-four quarters). The Rs 323 million Ebitda surpassed estimate by 6%.
PAT stood at Rs 179 million (up 38% y-o-y) and surpassing our estimate by 8%. We expect FSC’s revenue to grow at a rapid pace (37% revenue CAGR over FY18-20) led by growth of anchor client — Future Group — as well as non-anchor clients (12 months’ sales pipeline of Rs 4-5 billion is at various stages of discussion). The company’s capacity addition programme (guidance has been raised significantly versus Q4 FY18) also instills confidence in FSC’s ability to grow at a hectic pace.
We estimate FSC to post ~37% and 40% CAGR in revenue and EPS, respectively, over FY18-20 with RoE of 23% (up 420 bps). We maintain buy and value the stock at 26x FY20E EPS (~30% premium to sector) given its almost 2x industry growth, healthy RoE and cash generation to arrive at target price of Rs 852. At CMP, the stock trades at FY20E PER of 19.5x.
