Future Retail (FRL) reported revenues of Rs 26.16 billon (up 14.9% YoY), marginally higher than expectation of Rs 25.77 billion. The total operational space stands at 10.93 million square feet (mn sq ft). The company reported a gross margin of 28.75% (up 205 bps YoY) vs. estimate of 28.05%. The operating margin at 11.8% (up 180 bps YoY) was also ahead of estimate of 10.5%.

Interest cost continued to remain elevated and rose 19% YoY to Rs 1.77 billion while depreciation increased 52% YoY to Rs 1.28 billion. Consequently, FRL reported a PAT of Rs 53 million for the quarter.

Commenting on the same, ICICIdirect said, "FRL is one the largest retail players. However, in the quest to achieve this, the company has had to suffer on the balance sheet front. Mounting debt and inventory levels have impacted the profitability of the company. While the recent restructuring has aligned the balance sheet of the other business, FRL still remains under the burden of heavy debt. Recently, FRL concluded a rights issue and raised Rs 16 billion. The company is looking at further options to reduce its debt. A timely reduction of debt is critical for FRL while a delay in debt reduction would continue to hurt profitability. We have a cautious outlook and a Sell rating with a target price of Rs 102 (0.7x FY17E EV/Sales, 25% discount to Shoppers Stop)."

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