Future Supply Chain Ratings| Company is poised for strong growth

Published on March 19, 2019
By Financial Express

By Bank of Baroda Capital Markets

Future Supply Chain Solutions (FSCSL) is among the leading players in India’s contract logistics space, where its deep expertise in consumer-oriented supply chain management paired with astute technology investments equips it well to capitalise on the robust 3PL industry prospects (17-18% CAGR). We expect rapidly growing anchor customers (Future Group entities) and a diversified non-anchor clientele to catalyse strong revenue/earnings CAGR of 28/27% over FY19-FY21 – initiate coverage with Buy and a Mar’20 target price of `780.

Differentiated player with niche focus 
Established as a captive supply chain management arm for the Future Group’s retail business in 2006, FSCSL has since emerged as one of the leading contract logistics players in India with niche expertise in consumer supply chains (90%+ of revenue) – a key competitive moat considering that consumer verticals (durables, retail, fashion) have complex logistic needs and also offer the best growth opportunities in the 3PL space.

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Rapidly growing anchor clients
Consensus estimates peg revenue growth for FSCSL’s three key anchor customers at 18% over FY19-FY21. FSCSL is more than doubling warehouse space to 10 mn sq ft by FY20 over FY18 to cater to its fast-growing anchor customers (62% of revenue, >40% growth over FY15-FY18) and expanding non-anchor base.

Strong growth ahead
Established credentials, a robust client base, technology investments and conducive industry dynamics are forecast to drive a 30/17% CAGR in FSCSL’s contract logistics/express businesses for FY19-FY21. Standalone revenue/ Ebitda/earnings are forecast to log a robust 28%/31%/27% CAGR.

Initiate with Buy
We value FSCSL at 25x FY21E P/E, at a 20% discount to Mahindra Logistics’ 30x P/E multiple, yielding a Mar’20 target price of `780.

Investment thesis 
While retail-focused Future Group entities — Future Retail, Future Lifestyle and Future Consumer — remain the mainstay anchor customers, the company has broadened its client base such that non-anchor customers formed 38% of revenue in 9MFY19. It has also added several value-added services to its repertoire.

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