Future Capital Holdings (FCH), the financial services arm of the Future Group, was incorporated by Pantaloon Retail (India) (PRIL) in 2005. PRIL holds a 74% stake in the company, while the hedge fund Och Ziff Capital holds 10%. Co-promoters Sameer Sain and other senior employees hold the remaining stake. FCHL is coming out with a public issue to augment the capital base to meet its future growth, particularly to finance the expansion of Future Money.
FCH is currently in three primary businesses: investment advisory services, retail financial services, and research. Investment advisory includes private equity and real-estate investment advisory services to onshore and offshore clients. This asset management business has four funds under management: Kshitij ($850-million domestic real-estate fund), Horizon ($350-million international real-estate fund); Indivision ($400-million non-leveraged private equity fund); and a new hospitality fund ($350 million).
FCH launched Future Money, the retail financial services arm that currently focus on two main products, consumption loans and personal loans, in June 2007. Further, it has entered into an agreement with ICICI Bank for marketing and distribution of Future Card, a credit card offering loyalty points. Presently, Future Money has 95 outlets in the retail stores of PRIL and its subsidiaries in 26 cities.
Strengths
Has over US$ 1.5-billion assets under management within two years of operation. Has strong group synergies and well-experienced management team with talented pool of professionals.
Minimal customer acquisition cost due to agreement with PRIL, giving exclusive right to provide financial products and services at retail outlets owned, controlled or managed by PRIL and its subsidiaries. This provides access to PRIL’s approximately 400 stores across 40 cities and its large customer base that engaged in over 450 lakh transactions in PRIL stores in financial year ending March 2007 (FY 2007).
Weaknesses
Has limited operating history, devoid of any earning track record. Incurred a consolidated loss of Rs 12.43 crore in the six months ended September 2007, primarily reflecting the start-up cost of the new Future Money business.
Many subsidiaries have generated negative cash flows in the recent fiscal. Also, two of the subsidiaries have had a negative net worth in the past years. Indivision Investment Advisors (IIAL) had a negative net worth of Rs 214.25 lakh in FY 2006. Myra Mall Management Company (MMMCL) had a negative net worth of Rs 65.41 lakh end September 2007 and Rs 28.92 lakh in FY 2007.
The new retail business focuses on consumption and personal loans as well as credit cards. With many matured players already existing, competition is high in the retail business. Also, these loans are unsecured. As the group has little experience in financial services, the delinquency ratio can shoot up in future.
Almost 76% of the total revenue came from advisory business in FY 2007. However, majority of the investments advised belong to the real-estate and hospitality sectors, which are cyclical in nature.
Valuation
At the offer price band of Rs 700-Rs 765, P/E based on full year ended FY 2007 EPS of 0.60 works to 1,167 (on lower band) to 1,275 (on upper price band) times. P/E of other comparable listed players are: India Bulls Financial Services (51.4 times), India Infoline Financial Services (133.7 times), IL&FS Investsmart (44.2 times), and Reliance Capital (96.6 times). At the offer price, market cap of Future Capital will stand at Rs 4,430-4,845 crore compared to market cap of Rs 67,942.49 for Reliance Capital, Rs 22,780 crore for India Bulls and Rs 10,108 crore for India Infoline.
The wafer thin profit turned into losses in the first half of the current fiscal. In H1 of FY 2008, consolidated total income was Rs 31.27 crore, on which a net loss of Rs 12.43 crore after prior period item and share of minority interest was incurred.