Update on April 29th

• Future Ventures has got a dull response till today. The overall subscription is 1.52 times the offer.
• QIB section is oversubscribed 0.26 times, HNI is (strangely) 7.8 times and Retail 0.6 times.
• Poor response may be not just because of poor reviews (see my IPO note below) but also concurrent investments in Muthoot Finance IPO as well as the falling Sensex over the last few days.
• Good luck with your investments !!

IPO Note – Published on: Apr 23, 2011

Future Group – Promoter

• Future Ventures is a part of Future Group, which owns companies like Pantaloon Retail India (Big Bazaar, Food Bazaar), Future Value Retail and NBFC Future Capital Holdings, Future Generali Insurance, Futurebazaar India, etc.
• The core business of the Future Group is Retail, but subsidiaries are present in consumer finance, capital, insurance, leisure and entertainment, consumer brands, retail real estate development and retail media and logistics. The key promoter is the well-known Mr. Kishore Biyani.
• Two of these group companies are listed entities, Pantaloon Retail India and Future Capital Holdings.
• These two have not exactly outperformed in the last few years in the market.

Pantaloon Retail – Financial snapshot

A 5-year view of the share price of Pantaloon Retail. (click on graphic to enlarge)

A view of financials of Pantaloon Retail. (click on graphic to enlarge)

• While revenues are high/have grown fast, there have not been corresponding EPS growth (due to dilutions), and the P/E still remains very high
• Current market cap – 6000 crores

Future Capital Holdings

• Had IPO in Feb 2008
• The stock has suffered an average 40% fall in share price annually in the last 3 years

A view of financials of Future Capital. (click on graphic to enlarge)

• Sales have not increased steadily; Profits have increased, but P/E still remains very high
• Current Market cap – 1060 crores

The short profiles of group companies show that while the ‘BigBazaar’ brand is very good, and revenue growth high, the group has not been able to translate it’s ambitious plans into profitable businesses, and benefit shareholders.

Future Ventures – Business Profile

• Future Ventures is like a holding company, that invest in and operates businesses in ‘consumption-led’ sectors in India, sectors which will grow as the purchasing power of Indian consumers increases, and caters to their changing tastes, lifestyle and spending habits.
• Future Ventures has so far invested around Rs 450 crore in apparel makers, and Rs 250 crore in processed foods and consumer goods space.
• The Company has 14 companies in its portfolio, and owns brands in fashion, FMCG, food processing and home products.

Category	Company	Products/ Market	Remarks
Retail distribution	1.   Aadhaar Retailing Limited	Rural and semi-urban retail distribution of agricultural and consumer products	Majority stake
FMCG	2.   Future Consumer Enterprise Ltd.	Brands such as Tasty Treat, Clean Mate, Care Mate, Premium Harvest and Fresh and Pure, being marketed through Big Bazaar and Food Bazaar.	Majority stake
FMCG	3.   Future Consumer Products Ltd	Brand ―Sach.	Majority stake
Fashion	4.   Indus League Clothing Limited	Ready-made garments under brands like Indigo Nation, John Miller, Scullers and Urban Yoga	Majority stake
Home Products	5.   Indus Tree Crafts Private Limited	Domestic retailing and distribution of a wide range of environmentally and socially sustainable products.	Majority stake
Fashion	6.   Lee Cooper India Limited	A manufacturer and retailer of denims, trousers, jackets, shirts and shoes under the Lee Cooper brand.	Majority stake
Fashion	7.   Biba Apparel,	Holds 17.3% stake in Biba, which will be upped to 28% soon
Food Processing	8.   Capital Foods	A food processing company with brands like Chings Secret, Smith & Jones, Raji, Mama Marie and Kaeng Thai.
Consumer	9.    Amar Chitra Katha	Stake to increase to 26% from 13.7% presently
Fashion	10.     AND Designs India Ltd; Global Desi	Luxury clothing brands
Fashion	11.     Holii Accessories Private Ltd	A joint venture with Hidesign India Private Limited for leather handbags and wallets
Fashion	12.     Celio Future Fashions Ltd	A JV with a French brand of men‘s apparel and accessories
Fashion	13.     Turtle Limited	Manufacturer, distributor, exporter and retailer of men‘s wear products.
Retail	14.     SSIPL Retail Ltd	A retailer of Nike branded products, wholesaler of footwear, sportswear and apparel, and a manufacturer and distributor of footwear.

Strategy

• Future Ventures tries to exercise operational control or influence in the business ventures in which it invests
• They pursue appropriate longer-term value creation strategies, which may include unlocking value in their business ventures through public market or private sales.
• Future Ventures is also looking to invest in more ‘mature opportunities’ in companies which, it believes, have unrecognized growth potentials or are undervalued or in which it can identify hidden assets or recovery potential.

Financials

• The company had consolidated net worth of Rs 738 crore as of December 31, 2010, with the value of investments pegged at Rs 112 crore.
• For the nine-month period ended in Dec 2010, it had a total income of Rs 399 crore (primarily through retail sales of merchandise from its subsidiaries) with a net loss of Rs 14.67 crore.
• Company officials claim that most of the companies that Future Ventures has invested in are breaking even at the EBITDA level and the results will improve going ahead. /This does seem like a tall claim :-).
• The company is not expensive at around 1.1x post IPO book value (at upper band).
• Market cap after successful listing would be about Rs 1800 crores

Negatives/ Challenges/ Concerns

• For many portfolio companies, this is very early in the investment cycle. It is actually Private Equity companies that invest in such early stage, high risk businesses.
• Most businesses are small and are many years and crores of rupees away from break-even volumes, a national recognized brand and profitability. Even with Pantaloon’s clout in distribution, it will take many years of investment to start making profits.
• Intellectual Property – royalty payments to be made to Future Group for ‘Future’ trademark.
• While there is a common ‘consumption‘ theme in the Portfolio companies, there are few synergies among them. Eg. A high-end fashion label from a well-known designer has little rub off on Amar Chitra Katha comics for kids or Chinese food sauces.
• It’s possible that Pantaloon Retail may soon launch a number of Retail formats, but Future Ventures is a shaky ‘backward integration’ for Pantaloon Retail.
• Maze of portfolio companies, difficult to value and project financials.

Offering

• The IPO has been priced at Rs 10-11 a share. It is open for subscription from April 25-28 for Institutional investors and till April 29 for Retail.
• The company will raise Rs 750 crore rupees through its initial public offering of shares, of which Rs 120-150 crore will be invested in existing businesses, while the remaining amount will be used for new acquisitions
• Besides various privately held group firms of Kishore Biyani, Pantaloon Retail is the largest shareholder of Future Ventures with 18 per cent stake that will fall to 9.5-10 per cent post issue. Promoters’ combined holding will drop down to around 31-32 per cent post IPO while that of  Bennett Coleman & Co Ltd (Times of India Group) will see its 12 per cent stake drop to around 6.5 per cent, according to industry estimates.
• This is the second attempt by the company to raise money via an IPO. It had earlier filed for an IPO just when the financial crisis began, then cancelled it.

Investment Advice

• Avoid the issue for the following reasons:

1. This is an investment vehicle in a clutch of firms that need heavy investments to grow in terms of brand and scale of business
2. There is a bad record of profitability in the current business
3. Poor track record of the promoter, of shareholder value creation in previously listed firms.

• Watch subscription figures of IPO till April 28 to set expectations
• Check back on the website www.jainmatrix.com for updates.
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