Future Retail erases morning gains, slumps up to 8% post Amazon deal

Shares of Future Retail slumped as much as 7.94 per cent to Rs 380.60 apiece on the BSE in the morning trade on Friday, a day after the company informed that American e-commerce giant Amazon.com is acquiring a 49 per cent stake in its group entity — Future Coupons.

Early in the trade, the stock hit a high of Rs 424.30 against yesterday's close of Rs 413.45. At 10:38 am, the stock was trading at Rs 393.85 apiece on the BSE, down around 5 per cent. In comparison, the benchmark S&P BSE Sensex was ruling at 36,520.62 levels, down 48 points or 0.13 per cent. 

After almost a year of negotiations, global e-commerce and technology giant Amazon.com is acquiring a 49 per cent stake in Future Coupons, the promoter entity of Future Retail. The size of the deal is between Rs 1,500 crore and Rs 2,000 crore, said a Business Standard report. READ MORE

Through this transaction, Amazon has managed to acquire around a 3.6 per cent stake in the Future group.

"We have been informed by Kishore Biyani on behalf of the existing shareholders forming part of the promoter group and Future Coupons Limited (promoters) that they have entered into a share subscription agreement and a shareholders’ agreement with Amazon.com NV Investment Holdings LLC (Amazon)," Future Retail said in a BSE filing on Thursday evening. 

Other group stocks were trading flat in the trade. For instance, Future Enterprises was trading at Rs 25.70, up just 0.39 per cent while Future Lifestyle was ruling at Rs 427.80 apiece, up 0.04 per cent. 

Analysts at Edelweiss Securities find the company's pact with Amazon as a prudent move in the current retail ecosystem. The Amazon pact will help the company set up an omni-channel business model, restructure board to up corporate governance standards, and reduce related-party transactions, they wrote in a note dated August 23. 

However, they cautioned that risks may emanate from regulatory changes which is likely to derail deal contours. "We maintain ‘BUY/SP’ with the target price (TP) of Rs 498 (maintain 21x, 1 year forward EV/EBITDA; while scope for re-rating remains, we will closely monitor execution of joint business development plan and progress on the same)," they wrote.  

At CMP, the stock is trading at 16.6x FY21E adjusted for INDAS 116 EV/EBITDA (9.0x FY21 unadjusted EV/EBITDA). 

On a year-to-date (YTD) basis, shares of all Future Group stocks have underperformed the market. While Future Enterprises and Future Retail have lost 33 per cent and 18 per cent, respectively, those of Future Lifestyle has gained 0.67 per cent during the period. The benchmark S&P BSE Sensex, on the other hand, has gained over 1 per cent.