FUTURE LIFESTYLE

FASHIONS
PROJECT: FINANCIAL STATEMENT
ANALYSIS

GROUP 5

MBA/0412/56 AYUSH CHAMARIA

MBA/0423/56 HARITHA UNNIKRISHNAN
MBA/0424/56 HARSHITA REDDY
MBA/0426/56 IKJOT KAUR
MBA/0459/56 RITIKA SHARMA

1
 CONTENTS
Part 1: Key Findings ................................................................................................................................... 3
Part 2: Detailed Analysis ............................................................................................................................ 5
2.1 Company Background ....................................................................................................................... 5
2.1.1 Brief History ............................................................................................................................... 5
2.1.2 Nature Of Operations .................................................................................................................. 5
2.1.3 Lines Of Business ....................................................................................................................... 5
2.1.4 Industry Outlook ......................................................................................................................... 5
2.2 Financial Statements.......................................................................................................................... 6
Assumptions ............................................................................................................................................ 6
2.3 Key Accounting Policies Of FLF ...................................................................................................... 6
2.4 Interpretation Of The 2019 Financial Statements For FLF ............................................................... 9
2.5 Trend & Common Size Analysis..................................................................................................... 10
2.6 Comparative Analysis with Trent & Shoppers Stop ....................................................................... 11
2.7 Flf’s Financial Strengths & Weaknesses Vis-À-Vis Competitors .................................................. 12

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PART 1: KEY FINDINGS
Cash Flow Statement:
Cash flow from operating activities has remained consistent through the years. Cash flow from investing
activities decreased over the years. Proceeds from sale of financial investments in 2016-17 resulted in
high cash inflow in that year. By comparison, cash inflow in subsequent years has been low. Purchase of
financial investments in 2018-19 has further increased cash outflow in that year. Cash flow from financing
activities has increased over the years. In the year 2016-17, FLF has repaid loans and in the following
years, they have borrowed ~180 crores. In addition to borrowing, they have also issued shares worth ~170
crores. This has led to a boost in inflow of cash from financing activities in 2017-18 and 2018-19.

Income Statement Future Lifestyle Fashion's cash flow statement

COGS
2017 2019
Operating
2018 Operating
2018 Investing
Expenses
2019 Depreciation & Financing
2017
Amortization
0% 50% 100% -1000 -500 0 500 1000

Common Size Analysis – Income Statement:

COGS as a proportion of revenue has remained constant YoY implying that FLF is good at controlling its
product costs. The operating & non-operating expenses are also similar across the years. The variation in
Profit after Tax is only due to the change in income tax expenses. Hence, the IS for FLF is consistent &
there have not been any major changes in the last 3 years.

211.28 PPE
200
138.27 Capital WIP 150
Net Profit
139.16 Investments 100 EBT

Loans 50 Finance Cost

157.81
1223.23 Other Non 0
Current Assets 2019 2018 2017

Common Size Analysis – Balance Sheet:

There was a significant increase in PPE but as a proportion of fixed assets, it has remained similar. A 52%
increase in current liabilities is observed due to a rise in trades payable & other financial liabilities. These
other liabilities include current maturities of long-term borrowings and creditors for capital supplies /
services. There was also a 30% increase in advance from customers, adding to the rise in other current
liabilities.
Trend Analysis – Balance Sheet:
There is a 37% increase (330 cr) in PPE but only a 130 cr decrease in the Capital WIP so the remaining
200 cr worth of PPE was purchased. Within the PPE purchased, furniture & fixtures had the highest
increase (392cr), followed by leasehold improvements (124cr). A 52 cr investment was made in Koovs
PLC, a London-headquartered fashion e-commerce website, to get a strategic online presence and there
by complement the existing value chain. The equity share capital has increased by ~0.8 crore due to
subscription of the Company's equity shares by L Catterton, a global private equity firm, as part of the
9.99% stake it has picked up in FLF. This will allow FLF to develop its portfolio of brands and expand
its retail network. The Board of Directors recommended a dividend of ₹1.40 per equity shares of face

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value ₹2, leading to an increase of 16% in the dividends paid. Investments worth 70 crores were made in
a Joint Venture with Travel Retail Services Private Limited to manage the retail outlets/space at 4 Indian
airports.
Comparative Analysis, DuPont Analysis and Efficiency Ratios

12 10.94

10

8
6.15
6

4 2.91
1.521 0.513
1.671
2 1.192 0.923 0.471 1.195
0.233 0.111 52.25% 29.12% 4.09%
0
Current Ratio Quick Ratio Interest Coverage Ratio Debt to Equity Ratio Liability to Equity Ratio

FLF Trent Shoppers Stop

Future Lifestyle Fashions has an maintained an industry average Current and Quick Ratios, though they
are on a lower end, which can create liquidity concerns since their Inventory days are also higher than
their competitors. The Debt to Equity and Liability to Equity ratios are also on the higher end of the
spectrum, which is not a cause of concern currently but can be in future. Shoppers Stop does not carry any
debt as of now, which explains its abnormally low Debt to Equity ratio in comparison to the other two
companies.

12 250
9.56 197.6 203.2
10 7.69 8.16 200 180.9
149.3
8
148.9
150
5.23 5.04 124.5
6
3.58 3.72 100 68.5
4 2.195 75.9
2.26 2.671
2.7 64.2
1.471
2 50 15.9
12.1 21.5
0 0
RoE RoA Net Profit Margin Financial Leverage Cash Cycle Receivable Days Inventory Days Payable Days
Multiplier

FLF Shopper's Stop Trent 2019 2018 2017

The comparative analysis between FLF, Shopper’s Stop and Trent for Return on Equity (DuPont Analysis)
shows the highest RoE for our lead company, primarily attributable to the high Financial Leverage
Multiplier (Total Assets/Total Equity). The RoA and Net Profit Margin however are both lower than both
competitor companies, which can be an area for improvement.
The efficiency ratios (Cash cycle, Receivable days, Inventory days and Payable days) have been analysed
historically for Future Lifestyle Fashions, with an improving trend in all 3 ratios. However, the Inventory
days are higher than industry norm (181 days for 2018), indicating towards a prospective improvement in
the same, thereby reducing the cash cycle. The company has exhibited excellent efficiency in Receivable
days (way less than the industry norm, details in Part 2) with the latest AR days being 12.1 and consistently
improving for the last 3 years.

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PART 2: DETAILED ANALYSIS

2.1 COMPANY BACKGROUND

2.1.1 BRIEF HISTORY
The flagship fashion Company of the Future Group, Future
Lifestyle Fashions (FLF) is one of India’s fastest-growing
players in its space, with presence across both design and
distribution arms of fashion. It was formed in 2012 through
the demerger of the lifestyle fashion businesses of Future
Retail Limited (formerly Pantaloon Retail (India) Limited) &
Future Ventures India Limited.

2.1.2 NATURE OF OPERATIONS

The company's portfolio consists of leading domestic and global fashion brands spread across an entire
gamut of categories including formal menswear casual wear active or sportswear ethnic wear denim wear
footwear and accessories for men and women. The company's fashion brands are marketed through the
company's operated retail chains such as Central and Brand Factory as well as exclusive brand outlets
(EBOs) department stores and multi brand outlets (MBOs) which are spread in 332 stores in more than
90 cities across the country and cover over 5.74 million sq. ft. of retail space. These chains are backed by
strong sourcing network in house trend-spotting and design teams coupled with robust logistics and
warehousing network.

2.1.3 LINES OF BUSINESS

The Company is engaged in the business of lifestyle fashion. The Company has reinforced its position as
a leading fashion retailer in the Country and has derived its strengths in three integrated areas: fashion
brands, fashion retail and distribution and investments in fast growing fashion companies. From design to
distribution, FLF has end-to-end capabilities across the fashion value chain through their unique model
which combines the benefits of pure-play brand with the advantages of owned retail channels. It allows
FLF to maximize margins, control externalities and above all, enables superior customer experiences.

2.1.4 INDUSTRY OUTLOOK

The past year witnessed the global fashion industry grow between 4.0-5.0%, driven by demand for both
luxury and value brands alike. The lifestyle fashion market in India is among the fastest evolving
businesses in the country. India has emerged as one of the fastest-growing fashion markets in the world.
The country is set to become a ₹7,88,532 Crore apparel market by 2028, growing at a 10- year CAGR of
8.1% from ₹ 3,61,160 Crore at present. Entry of international brands, changes in preferences from non-
branded to branded, the fast-growing economy and large young consuming population make India a
lucrative fashion market. As per a recent study conducted by McKinsey & Company with Business of
Fashion, three core themes defined fashion industry for the stakeholders – ‘Changing’, ‘Digital’ and
‘Fast’. Taken together, these themes point to where fashion is headed and where brands should focus their
energies. Amidst tepid global growth prospects, fashion industry is expected to grow by 3.5-4.5% in 2019.

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 Table 1-C: Future Lifestyle Cash Flow Statement
2.2 FINANCIAL STATEMENTS
(Rs. Crore)

Table 1-A: Future Lifestyle Income Statement

(Rs. Crore)

Table 1-B: Future Lifestyle Balance Sheet (Rs.

Crore)

ASSUMPTIONS
• While calculating COGS in Income
Statement, we have considered three
components:
- Cost of Material Consumed
- Purchase of Stock-in-Trade, and
- Changes in inventories of Finished
Goods, Stock-in -Trade and work-in
progress

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Table 2-A: Income Statement of Competitors Table 2-B: Balance Sheet of Competitors

Table 2-C Cash Flow Statement of Competitors

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2.3 KEY ACCOUNTING POLICIES OF FLF
Property, Plant and Property, plant and equipment are stated at cost, less accumulated depreciation
Equipment and impairment, if any. Costs comprises of purchase price and any attributable
cost of bringing the assets to its working condition for its intended use. The
cost of property, plant and equipment acquired in a business combination is
recorded at fair value on the date of acquisition. An item of property, plant and
equipment and any significant part initially recognised is derecognised upon
disposal or when no future economic benefits are expected from its use or
disposal.

Intangible Assets Intangible Assets are carried at acquisition cost less accumulated amortisation
and accumulated impairment losses, if any. Acquisition cost includes
Information system related Costs as well as costs incurred for enhancement
and improvements. Amortisation is recognised on a straight-line basis over
their estimated useful lives.

Revenue recognition: The Company deals in fashion products including apparel, footwear and
Sale of Goods accessories to both the large format stores and directly to customers through
its own retail outlets. For sales of goods to retail customers, revenue is
recognised when control of the goods has transferred, being at the point the
customer purchases the goods at the retail outlet. Payment of the transaction
price is due immediately at the point the customer purchases the goods. For
sales of fashion products, revenue is recognised when control of the goods has
transferred, being when the goods have been shipped to specific location
(delivery).

Leases Leases where significant portion of risk and reward of ownership are retained
by the lessor, are classified as operating leases and lease payments are
recognised as an expense in statement of profit and loss as per the terms of
agreement which is representative of the time pattern of the user’s benefit.

Inventories Inventories are stated at the lower of cost and net realisable value. Costs of
inventories are determined on weighted average basis. Cost of inventories
comprise of cost of purchase, cost of conversion and other related cost
incurred in bringing the inventories to their present location and condition.

Foreign currencies Indian rupee is the functional currency of the Company. In preparing these
financial statements, transactions in currencies other than the functional
currency (foreign currencies) are recognised at the rates of exchange
prevailing at the dates of the transactions. At the end of each reporting period,
monetary items denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated.

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2.4 INTERPRETATION OF THE 2019 FINANCIAL STATEMENTS FOR FLF

CASH FLOW • Cash flow from operating activities has remained consistent through the years.
STATEMENT • Cash flow from investing activities decrease over the years. Proceeds from sale
of financial investments in 2016-17 resulted in high cash inflow in that year.
• By comparison, cash inflow in subsequent years has been low. Purchase of
financial investments in 2018-19 has further increased cash outflow in that year.
• Cash flow from financing activities has increased over the years. In the year
2016-17, FLF has repaid loans and in the following years, they have borrowed
~180 crores.
• In addition to borrowing, they have also issued shares worth ~170 crores. This
has led to a boost in inflow of cash from financing activities in 2017-18 and
2018-19.

BALANCE • There is a 37% increase (330 cr) in PPE but only a 130 cr decrease in the capital
SHEET WIP so the remaining 200 cr worth of PPE was purchased. Within the PPE
purchased, furniture & fixtures had the highest increase (392), followed by
leasehold improvements (124).
• A 52 cr investment was made in Koovs PLC, a London-headquartered fashion e-
commerce website, to get a strategic online presence and there by complement the
existing value chain.
• Investments worth 70 cr were made in a Joint Venture with Travel Retail Services
Private Limited to manage the retail outlets/space at 4 Indian airports.
• The equity share capital has increased by ~0.8 crore due to subscription of the
Company's equity shares by L Catterton, a global private equity firm, as part of
the 9.99% stake it has picked up in FLF. This will allow FLF to develop its
portfolio of brands and expand its retail network.
• The Board of Directors recommended a dividend of ₹1.40 per equity shares of
face value ₹2, leading to an increase of 16% in the dividends paid.

INCOME • The net profit for the period stood at ₹189 crore, a ~50% increase from previous
fiscal, driven by strong operating profit growth across formats and lower cost of
STATEMENT interest.
• During the year, FLF delivered revenue from operations of ₹5,728 crore, a 27.3%
increase from the previous fiscal’s ₹4,498 crore. Strong revenue growth was on
the back consistent same store sales growth coupled with expansion in Central
and Brand Factory. Robust performance by own brands have also aided in stellar
revenue growth.
• The consolidated profit before tax stood at ₹240 crore. It has increased from the
previous financial year by 30% owing to the operating leverage in own store and
prudence in cost management.
• The finance costs increased marginally (7.9%) compared previous fiscal due
strong fiscal budget management and capital allocation coupled with lower
interest cost financial products.

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2.5 TREND & COMMON SIZE ANALYSIS
Income Statement Balance Sheet
Common Size
• COGS as a proportion of revenue has • There was a significant increase in PPE but as
remained constant YoY implying that FLF a proportion of fixed assets, it has remained
is good at controlling its product costs similar.
• The operating & non-operating expenses are • A 52% increase in current liabilities is
also similar across the years. observed due to a rise in trades payable & other
• The variation in Profit after Tax is only due financial liabilities. These other liabilities
to the change in income tax expenses & a include current maturities of long-term
modest rise in finance costs borrowings and creditors for capital supplies /
• Hence, the IS for FLF is consistent & there services.
have not been any major changes in the last 3 • There was also a 30% increase in advance from
years customers, adding to the rise in other current
liabilities.
Breakup of Total Assets Breakup of Liabilities & Equity

Trend Analysis
• The net profit for the period stood at ₹189
crore, a ~50% increase from previous fiscal,
driven by strong operating profit growth
across formats and lower cost of interest.
• During the year, FLF delivered revenue
from operations of ₹5,728 crore, a 27.3%
increase from the previous fiscal’s ₹4,498
crore. Strong revenue growth was on the
back consistent same store sales growth
coupled with expansion in Central and
Brand Factory. Robust performance by own • Investments worth 70 cr were made in a Joint
brands have also aided in stellar revenue
growth.
• The consolidated profit before tax stood at
₹240 crore. It has increased from the
previous financial year by 30% owing to the
operating leverage in own store and
prudence in cost management.
• The finance costs increased marginally
(7.9%) compared previous fiscal due strong
fiscal budget management and capital
allocation coupled with lower interest cost
financial products.
• There is a 37% increase (330 cr) in PPE but
only a 130 cr decrease in the capital WIP so the
remaining 200 cr worth of PPE was purchased.
Within the PPE purchased, furniture & fixtures
had the highest increase (392), followed by
leasehold improvements (124).
• A 52 cr investment was made in Koovs PLC, a
London-headquartered fashion e-commerce
website, to get a strategic online presence and
there by complement the existing value chain.
Venture with Travel Retail Services Private
Limited to manage the retail outlets/space at 4
Indian airports.
• The equity share capital has increased by ~0.8
crore due to subscription of the Company's
equity shares by L Catterton, a global private
equity firm, as part of the 9.99% stake it has
picked up in FLF. This will allow FLF to
develop its portfolio of brands and expand its
retail network.
• The Board of Directors recommended a
dividend of ₹1.40 per equity shares of face
value ₹2, leading to an increase of 16% in the
dividends paid.

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2.6 COMPARATIVE ANALYSIS WITH TRENT AND SHOPPERS STOP

Profitability and Payout Ratios Trent has the best profitability margins in the 3
60% 51.32% companies we analyzed, as well as the highest
50% 41.77% Dividend Payout Ratio, followed by Future
35.68% 33.85%
40% Lifestyle. There is a sharp reduction from Gross
30% Profit Margin to EBIT margin in the industry,
8.92%
20% 14.26% indicating towards high Operating Expenses in
5.64% 5.04% 8.38%
10% 3.91% 2.70% 2.26% general (primary expense that we observed was
0% Rental Expense). There is a consistent trend of
Gross Profit EBIT Margin Net Profit Margin Dividend Payout
paying out dividends for all three companies, with
Margin Ratio
Shoppers Stop paying dividends in 2017 even
FLF Trent Shoppers Stop after making Net losses.

Efficiency Ratios Shoppers Stop exhibits the smallest cash cycle

200
among the 3 companies analyzed, exhibiting best
180.9
180 efficiency of cash conversion from sales, primarily
160 122.7 attributable to highest AP days. Trent has the
140 124.4 124.5 lowest AR days, indicating towards the best
115.6
120
bargaining power with its customers. FLF has the
100
80
68.5
68.6
lowest Inventory Turnover and takes
56.1
60 approximately 1.5 times the time taken by its
40 competitors to turn its inventory into sales. Trent
13.5 12.1
20 2 4.6
has the lowest AP days as well, indicating a good
0
Cash Cycle Receivable Days Inventory Days Payable Days bargaining power with its suppliers.

FLF Trent Shoppers Stop

Turnover Ratios The primary components of assets for these

15 11.852
companies are Property, Plant and Equipment,
Investments and Inventory. FLF has the highest
10 5.197
5.964 Working Capital turnover among these companies,
4.196 4.575 3.549 3.58
5 1.324 1.643 2.271 indicating a highly efficient use of its working
1.039
0 capital to generate revenues. It seems like there
aren’t much of current assets locked into working
-5
capital (FLF has lowest Current Asset T/O) but if
-10 there is a sharp decrease in current assets overall, it
-15 can be a cause of concern. Shoppers Stop has the
best Total and Fixed Assets T/O, indicating a high
-20
efficient use of its assets overall but a negative
-21.599
-25 working capital doesn’t sound good for the
Total Asset Fixed Asset Working Capital Current Asset
Turnover Turnover Turnover Turnover company as it indicates towards high current
liabilities.
FLF Trent Shoppers Stop

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2.9 FLF’S FINANCIAL STRENGTHS & WEAKNESSES VIS-À-VIS COMPETITORS
FINANICAL STRENGTHS

▪ FLF has a low requirement for short-term borrowing as it gets enough credit from its suppliers
which is evident in their Days Payable O/S – almost double that of Trent giving them more
flexibility in the use of working capital
▪ FLF is quite efficient in the usage of its working capital with a working capital turnover of 11.9
which in turn further decreases its reliance on short-term borrowings
▪ With ROE exceeding firms’ by ~1.5% is a good sign for investor confidence in the future but faces
tough competition from Shoppers Stop which is quickly catching up
▪ These strong fundamentals have helped the firm retain a good track record in terms of share price
as well, highlighting the investors’ confidence

FINANCIAL WEAKNESSES

▪ FLF has a low interest coverage ratio of <3 as compared to its competitors’ >5 which makes it
difficult for them to sustain their high leverage
▪ Competitors’ Gross profit margin surpasses FLF’s by a great extent which raises questions on
FLF’s pricing as well as its relatively higher procurement costs
▪ FLF has very high Days Sales of Inventory which indicates that a lot of cash is locked in inventory
which takes longer to sell and also leads to an increase in storage costs

Fig. Stock price movement of FLF over the last 3 years

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