Future Retail Ltd Management Discussions.

This year was a year of focused execution and stable expansion of our large format stores and strategic expansion of the small format stores.

Large Format Stores

We added 21 new large stores during the year and were able to achieve 10.9% same store sales growth in this format. Our focus on efficient store expansion has led to the furtherance of a distribution network that is unparalleled in the country.

In continuation of the previous fiscal year, Big Bazaar remained firmly on the path of operating leverage with improving margins quarter after quarter. We have successfully completed the integration of Hypercity with delivery of committed turnaround in time. Strong value enhancements from synergistic mutual strengths, rationalisation of back-end costs and economies of scale will continue to further improve the performance of integrated Hypercity stores.

Small Format Stores

On Small format stores this year, we maintained dual strategic focus -(a) making older stores efficient with higher contribution from members with extensive data & tech development across delivery functions & processes, and (b) expanding aggressively in defined markets. We have opened more than 400 small stores this year, ending the year with more than 1,100 stores (including WHSmith). We added 6 lakh members this year, hence doubling the member base from last year. An easyday club member visits the store 3-4x a month fulfilling about 50-60% of his/her annual grocery consumption from this format.

We believe that the combination of large format and small format stores will enable us to serve better our loyal customers & members and in turn, continue to establish stronger foothold for FRL across all major markets of India. We already have a strong market foothold in several such centers.

Through membership penetration, the Company continues to increase its share in the consumers wallet, which to our belief, is sustainable advantage, profitable and value accretive in the longer run. Other key initiatives include, increasing the velocity of sales and productivity of stores while continuously deepening the market presence. Through data and technology-led improvements, our objective has been to enhance assortment relevance, improve quality standards, shopping experience and reinvent ourselves for higher customer conversion ratio, better ticket sizes and better same store sales growth. For our customers, we continue to drive their experiences to better & higher levels. Services like faster checkouts, sit-down lounges, digital shelf talkers and experience zones with multi sensorial food products giving a world class shopping experience are just some of them. Our stores are designed to be smarter and experiential through use of technology, innovation in services, layouts and filled with digital interfaces. These stores redefine the retailing experience and set new benchmarks for retailing in India.

Customer loyalty remains one of our key pillars of growth and we continue to focus on understanding our customers based on the data collected and analyzed of our frequent shoppers. We continue to develop digital payment wallet ‘Future Pay with the price match feature building firm customer trust, EMI facility for spends above certain limit across stores of the Company (through EMI network card co-branded with Bajaj Finance), #DecideYourPrice initiative through social networking websites, etc. Our membership programs have seen strongest ever growth and high renewal rates from the customers.

Industry Outlook

As per industry reports, Indias retail market size is pegged at ~USD822bn, of which the organized segment (excluding e-commerce) accounts for about 11% of the overall retail market as of FY19. This share is expected to increase to ~16% over the next 5-6 years, with the organized retail market growing at a CAGR of ~20%. Interestingly, over the last five years, the organized retail market grew at ~19%, increasing its penetration from 7% to around 11%.

The target market of the Company, which mainly comprises of low to high level income individuals, continues to expand more significantly. Based on external research, we believe FRL with its wide assortment of products across Food, Fashion and Home through large format stores and its targeted grocery assortment in the small format stores is on the path to capture a higher proportion of the growing modern retail share.

Overview: Operational, Customer and Marketing

Through the two store formats, large format and small format stores, Company retains its focus on the core categories of Food, Fashion and Home. A common thread across these categories is the advantage of scale to support our quest & delivery of improved quality,better value, higher availability and differentiated products in our stores. Pan-India reach continues to yield strategic edge to the business at large and all incremental space additions make the back-end operations more cost effective.

On marketing, in continuation to previous years partnerships, the Company was one of the key sponsors to two of Indias most coveted events – IPL and the fbb Miss India pageant. Promotional activities like Wednesday Bazaar, Public Holiday Sale, Independence Sale, Sabse Saste 5 Din continued to add value to customers and business alike. Innovations such as Kitchen Stock Exchange, Live shopping alongside facebook, exchange offers, specific category sales & many more delivered high participation from the customers. Further, the Future Pay wallet, price match challenge, electronics at cost price, #DecideYourPrice campaign kept the customers hooked onto our formats. fbb continues to connect with the young customers, by promoting various events. Miss India contest, IPL season 12, music and performance events continue to portray fbb as the fashion destination for youth. fbb has a strong presence on social media, such as Facebook and Twitter. The Company considers fbb as an important strategic piece to register its presence in fashion, enhance sales productivity and improve margin profile and profitability. fbb has become known for ‘fashion at affordable price. Further, celebrity endorsements and its media presence in big events like Miss India and IPL, continued to keep fbb fresh and renewed in minds of fashion conscious youth and other customers.

Awards and Recognitions

The Company and its formats received awards in categories like:

Big Bazaar

Big Bazaar was ranked among the most valuable brand by Interbrand; Big Bazaar won IMAGES Most Admired Brand Retail Partnership of the Year 2018; Big Bazaar won IMAGES Most Admired Retailer of the Year under Digital Marketing Campaign category; Big Bazaars Smart Search Campaign won MMG Awards, Troxy, London for Best Campaign in Fashion, Beauty & Retail Category for 2018 and the best Mobile Search Campaign globally by SMARTIES, New York; Big Bazaars 24hr Facebook Live Campaign won: ••Gold in Exchange4Media - Maddies of the Year 2018;

• EMVIE Silver under the category Best Media Innovation, Digital, Social Media;

• Best Online Advertising Campaign by Exchange4Media, Indian Digital Media Awards 2018.

Big Bazaars Midnight Sale Campaign won Silver in Exchange4Media - Maddies of the Year 2018; Big Bazaars Decide Your price won Gold in DMA Asia Echo 2018 under the Create Effect category; Big Bazaar Profit Club won Customer Loyalty Awards for the Best Card Based Loyalty Program and Best Loyalty Program in Retail Sector.

fbb (Fashion @ Big Bazaar)

fbbs Airport Makeover won ET Now - Stars of the Industry Award under the best Experiential and Brand Experience of the year; fbbs "National Jeans Day" Campaign won:

• ET Now - Stars of the Industry Award for the best use of social media and marketing;

• Best Branded Regional Campaign by Foxglove - Afaqs!;

• Gold for the Best Use of Social Media to launch a product or service by SAMMIEs - Social Samosa;

• Gold for the Best Lead Gen Campaign at 9th IDA - IAMAI; ••Best Launch of a Product by LIDMA - Lighthouse Insights;

• Digital Awards for the best lead generation campaign through mobile.

fbb won the best Print Campaign of the year at the Activation Venue Forum - Umbrella Aegis; fbb "500 Festive Looks" Campaign won:

• Best Use of Instagram by Foxglove - Afaqs!;

• Silver for the Best Content Marketing - Retail by DIGIXX - AdGully.

fbbs "World Shorts Day" Campaign won:

• Silver by DIGIXX - AdGully in Social Media;

• the Best Digital Integrated Campaign by Global Marketing Congress - CMO Asia;

• Silver for the Best Use of Social Media to generate leads or drive revenues by SAMMIEs - Social Samosa.

fbb won the Best Media Marketing Campaign, for "Dil Se Desi" Campaign by Global Marketing Congress - CMO Asia. easyday

easyday Club awarded Most Admired Food & Grocery Retailer of the Year under National Supermarket Category by IMAGES.

Foodhall

Foodhall at MKT, Chanakyapuri won VM&RD Awards 2019, North in Food Groceries and General Merchandise; Foodhall at MKT, Chanakyapuri won VM&RD

Awards 2019, North in Best Shop Fitting;

Foodhall at Two Horizon Centre, Gurugram won VM&RD Awards 2019, North in Food Groceries and General Merchandise.

Human Resource initiatives

Human Resource is one of the key interfaces the Company has with its customers and hence it is very critical to ensure continuous learning and development of its people resources. FRL employs 45,949 employees located at Head Office, Zonal Offices, Retail Stores, Design houses and Data-Centers across the Country. The Company imparts continuous training to its employees in various fields and at the same time also ensures individual development by imparting training for improvement of skills, knowledge and leadership abilities. The Company has attracted best talents from the industry as well as successful in retaining its core team, which has rich experience of last 20 years leading the Companys core retail business. This year we intend to work on two key pillars to transform our People Office, first by transforming our people processes with the help of technology and second by bringing together the synergies of people organisations across the Group. Further, the Company has implemented ESOP scheme to give better retention benefits to its valued human assets.

Business Outlook

Future Retail has an unparalleled network of stores under core two formats, spread across pan India and is poised to get the maximum benefit of the surge in the consumption drive. We believe that the network is strategically well placed to capture the growth in organized sector over unorganized as well as give incumbency advantages.

We would continue to strive towards optimization of capital employed in our business with a high focus on interest cost reduction, dependencies within the group or large external partners.

A potential reduction in debt, improvement in net worth, would help the Company to achieve better credit ratings, which could eventually help the Company to obtain funding at much more reasonable terms. The Credit Analysis & Research Limited (CARE), has assigned its rating for Short Term borrowings to [CARE A1+ [CARE A One Plus]] and Long Term borrowings [CARE AA- [CARE Double A Minus] as of March 31,2019. For further details on credit rating, you can refer corporate governance report forming part of this Annual Report.

FRL has been at the forefront of modern retail industry evolution and shall continue to lead from front. To this extent, our formats are significantly better on customer experience, technological advancements, and experienced and skilled workforce. We believe this could yield better growth than industry for us in the years to come.

Risks and Threats

External environment factors like interest rates, inflation, liquidity, rationalisation of tax structure, job creation and consumption sentiments continue to be the biggest threats as well as opportunities for the Company. Any slowdown in the economic activity in the Country, significant job losses or high rates of inflation can severely impact the consumption and therefore growth of the Company.

In the recent times, Indian economy has witnessed acute liquidity challenges and softness in the consumption in select discretionary categories (mainly Auto). Any furtherance of the sentiments into categories of our presence – Food, Fashion or Home, could potentially have an adverse impact on the growth and in turn on profitability. The continued liquidity issues could lead to a negative impact at the end of our vendors or supplier base as well, which might have an adverse impact on our working capital management.

Other external factors, such as increase in borrowing costs, policy changes or adversities could lead to negative surprises impacting growth, profitability and / or cash flows. While FRL does have robust internal controls and systems to manage such adversities, the outcome could still be challenging.

Internal controls and their adequacy

The Company had identified the key risks and control process to mitigate the same. Further, the Company continues this process of Enterprise Risk Management in order to identify the new risks and to define and establish the control process to mitigate the identified risks. Further, the Internal Control Framework for financial reporting, organization structure, documented authorities and procedures and internal controls are being reviewed by internal audit team on continuous basis and any issues arising out of the said audit are addressed appropriately. The Company is continuously upgrading its internal control systems by measuring state of controls at various locations. Controls in SAP, an ERP system have been strengthened.

The Audit Committee, comprising of Independent Directors is involved in regular review of financial and risk management policies, significant audit findings, the adequacy of internal controls and compliance with the applicable accounting standards.

Review of Financial Performance of the Company for the year under review

The financial results for the twelve months ended March 31, 2019 are not comparable with corresponding period of previous year, due to effect given to demerger of Home Retail Business undertaking to Praxis Home Retail Limited and demerged Retail Business Undertaking of Hypercity Retail (India) Limited with the Company in the previous year.

Sales: The Companys Sales and Operating Income has increased from Rs. 18,477.97 crore in previous financial year to Rs. 20,164.90 crore with Y-o-Y growth of 9.13% for the financial year ended March 31, 2019.

Profit Before tax (excluding one-time non-cash exceptional expense): Profit Before Tax of the Company for financial year ended March 31, 2019 stood at Rs. 732.81 crore as compared to Rs. 615.18 crore during the previous financial year.

Interest: Interest & Financial charges out flow has increased from Rs. 175.38 crore incurred in previous financial year to Rs. 223.98 crore for financial year ended March 31, 2019 due to increase in debt from Rs. 1,286.41 crore to Rs. 2,657.04 crore as at March 31, 2019.

Net Profit: Net Profit of the Company for financial year ended March 31, 2019 stood at Rs. 732.81 crore as compared to Rs. 11.31 crore (after providing for one-time non-cash expense of Rs. 603.87 crore due to loss on sale of investments) in the previous financial year.

Dividend: In order to conserve resources for future expansion plan, the Board of Directors of the Company has not recommended any dividend for the financial year ended March 31, 2019.

Capital employed: The capital employed of the Company was Rs. 6,508.99 crore as at March 31, 2019. Surplus management: The Company generated a cash profit of Rs. 833.40 crore for financial year ended March 31, 2019 as compared to Rs. 668.61 crore in the previous financial year, registering the growth of 24.65%. The amount is ploughed back into the business to fund the growth.

Equity share capital: The equity share capital of the Company has increased from Rs. 100.40 crore to Rs. 100.52 crore due to Rs. 0.12 crore worth of shares issued to employees exercising their stock options during the financial year under review.

Net Debt-Equity: Net Debt-Equity ratio of the Company has increased to 0.62 as at March 31, 2019 as compared to 0.36 in the previous financial year. This ratio has increased due to increase in debt from Rs. 1,286.41 crore to Rs. 2,657.04 crore as at March 31, 2019.

Net Worth (excluding Capital Reserve): The Net worth of the Company has increased from Rs. 3,220.47 crore to Rs. 3,976.15 crore due to Profit for the current year and shares issued during the financial year.

Cash Earnings Per Share (CEPS): The Companys CEPS (before exceptional items) has increased to Rs. 16.59 in current financial year in comparison to Rs. 13.32 in the previous financial year.

Earnings Per share (EPS): The Companys EPS (before exceptional items) has increased from Rs. 12.45 in previous financial year to Rs. 14.58 per share for the financial year ended March 31, 2019.