Future Ventures IPO Analysis

Investing in Future businesses

The company's ability to successfully mentor the business ventures and profitably divest its stake would eventually determine the success of its unique business model

Future Ventures was incorporated on July 10, 1996, with the name Subhikshith Finance & Investments. Following the acquisition of Subhikshith Finance & Investments in July 14, 2007 by Future Value Retail (earlier known as Pantaloon Future Ventures), a wholly owned subsidiary of Pantaloon Retail (India), its name was changed to Future Ventures. Futures Ventures is now a public limited company and is regulated by the RBI as a systemically important non-deposit accepting NBFC.

Future Ventures is a part of the Future Group. The Future Group is a business group, led by Kishore Biyani, focusing on consumption-led businesses in India and is also one of India's leading organized multi-format retailers. Pantaloon Retail (India), the flagship company of the Future Group, has incubated, nurtured and brought to maturity several businesses and formats, including Future Capital Holdings, Future General Insurance, Future Supply Chain, Future Agrovet, Future Media, Future Brands, Future Bazaar, Pantaloons, Central, Big Bazaar, Food Bazaar, Home Town and E-zone. Pantaloon Retail holds 18.15% of the total pre issue shareholding in Future Ventures.



Future Ventures seek to create, build, acquire, invest in and operate innovative and emerging businesses in growing "consumption-led" sectors in India, which it defines as sectors whose growth and development will be determined primarily by the growing purchasing power of Indian consumers and their changing tastes, lifestyle and spending habits. Within the consumption-led sectors, it intends to focus primarily on opportunities in the business segments of (i) fashion, (ii) FMCG, (iii) food processing, (iv) home products, (v) rural distribution and (vi) vocational education.

Future Ventures intends to exercise operational control or influence in the business ventures that it promotes or in which it acquire interests. In addition to allocating and providing capital, it intends to create, operationally manage and strategically mentor these businesses, which it refers to as the "Business Ventures". Future Ventures have 14 Business Ventures, six of which are its subsidiaries. Out of the 14 Business Ventures, it has indirect shareholding in three of its Business Ventures and one of its Subsidiaries is a step-down subsidiary.

The company seeks to enable its business ventures to conceptualize and implement their growth and development strategies and to help them convert ideas and insights into viable business propositions. It intends to be a long-term owner, operator and/or partner of the business ventures and seek to create value as an active shareholder by deploying the consumer insights, operating skills and capabilities available to it as a part of the Future Group. It seeks to access opportunities at various stages of the enterprise growth cycle, from nascent to more mature businesses, with a view towards medium to long-term value creation for shareholders.

Future Ventures intend to provide the business ventures with access to a wide range of resources within the Future Group. Pantaloon Retail (India), along with other arms of the Future Group, is expected to assist the company in providing mentoring to the business ventures, to actively assist their strategic growth and business development plans.

Future Ventures have entered into a Mentoring Services Agreement with Pantaloon Retail (India) to provide mentoring services to themselves and/ or the Business Ventures. Additionally, it has entered into a Consulting and Advisory Services Agreement with Future Capital Holdings under which it will, amongst other things, support resource mobilisation in investee companies, advise on mergers and acquisitions and exit strategies and provide research services in relation to Treasury Assets.

Future Ventures have also entered into a Master Service Agreement with Future Corporate Resources for providing support and other services related to business activities, such as governance, risk mitigation, human relation policies and information technology, guidance regarding corporate and legal compliance and advice on fund raising.

Future Ventures expect that the capabilities of Pantaloon Retail (India), Future Capital Holdings and Future Corporate Resources will help it create, develop and generate long term value from its Business Ventures.

Future Ventures has entered into a master license agreement with Future Ideas Company for use of certain trademarks in relation to the Future Group (the "Future Group Trademarks"). In accordance with the Master License Agreement, the company is required to pay a royalty of Rs 1. crore p.a. for Fiscal 2011 which increases incrementally to Rs 2.44 crore p.a. for Fiscal 2015. The Master License Agreement is valid from August 10, 2010 until terminated in accordance with the terms thereof.

The company is coming with an IPO to raise Rs 700 crore consisting of a fresh issue of 75 crore shares at a lower price band of Rs 10 per share and 68.18 shares at upper band of Rs 11 per share.

The company intends to utilize the net proceeds to create, build, invest or acquire, and operate business ventures; for general corporate purposes and to meet the issues expenses and achieve the benefits of listing on the Stock Exchanges

The company has following 14 Business Ventures:

AND Designs

AND Designs promoted by Anita Dongre and others caters to the women's apparel market, with focus on western wear. In the year of its investment (2008) in AND Designs, it operated through 28 exclusive brand outlets and 113 multi-brand outlets, including 64 Future Group outlets, which have increased to 44 exclusive brand outlets and 158 multi-brand outlets, including 72 Future Group outlets, as of February 28, 2011.

The sales and net profit after tax of AND Designs have increased at a CAGR of 57% and 157%, respectively from Fiscal 2008 to Fiscal 2010. For the nine month period ended December 31, 2010, AND Designs had sales of Rs 57.81 crore and a net profit after tax of Rs 6.70 crore.

Biba Apparels

Biba Apparels (BAPL) was incorporated in 2002 and is involved in the designing and marketing of women's apparel. In the year of its investment (2007) in BAPL, it operated through 37 exclusive brand outlets and 96 multi-brand outlets, which have increased to 68 exclusive brand outlets and 133 multi-brand outlets, including 65 Future Group outlets, as of February 28, 2011.

The net sales and net profit after tax of BAPL have increased at a CAGR of 22% and 26%, respectively from Fiscal 2008 to Fiscal 2010. For Fiscal 2010, BAPL had net sales of Rs 98.88 crore and a net profit after tax of Rs 8.10 crore.

Holii Accessories

Holii is joint venture between the Company and Hidesign India which is in the business of retailing fashion accessories such as leather handbags for women and wallets and other leather products under the brand name "Holii". As of February 28, 2011, Holii operated through five exclusive brand outlets and 62 multi-brand outlets, including 21 Future Group outlets.

For the nine month period ended December 31, 2010, Holii had sales and operating income of Rs 3.03 crore and a net loss of Rs 1.49 crore.

Indus-League Clothing

Indus-League Clothing retails its products through the brands; "Indigo Nation", "John Miller", "Scullers", "Urbana", "Urban Yoga", "Contra" and "Jealous". Indus-League has market presence in India, Sri Lanka, Middle East Asia, United Arab Emirates and Bahrain. In the year of its investment (2008) in Indus-League, it operated through 80 exclusive brand outlets and 345 multi-brand outlets, including 96 Future Group outlets. As of February 28, 2011, Indus- League operated through 88 exclusive brand outlets and 128 multi-brand outlets, including 81 Future Group outlets.

The sales and net profit after tax of Indus-League have increased at a CAGR of 15% and 144%, respectively from Fiscal 2008 to Fiscal 2010. For the nine month period ended December 31, 2010, Indus-League had aggregate sales of Rs 199.70 crore and net profit after tax of Rs 3.68 crore..

Celio Future Fashion

Celio was incorporated as a joint venture between Celio International, a France based men's apparel and accessories retailer, and Indus-League Clothing Limited (a Future Group entity), to retail men's apparel and accessories in the Indian market. In the year of its investment (2008) in Celio, it operated through 2 exclusive brand outlets and 14 multibrand outlets of the Future Group, which have increased to 20 exclusive brand outlets and 70 multi-brand outlets, including 53 Future Group outlets, as of February 28, 2011.

The net sales of Celio have increased by 244% from the year ended January 31, 2009 to the year ended January 31, 2010. For the eleven month period ended December 31, 2010, Celio had net sales of Rs 30.18 crore and loss of Rs 5.58 crore.

Lee Cooper (India)

Lee Cooper is a manufacturer and retailer of lifestyle products, including denims, trousers, jackets, shirts and shoes under the "Lee Cooper" brand. Lee Cooper has a 15 year exclusive license to manufacture and market "Lee Cooper" branded products in India in consideration of payment of a royalty of 3% of the annual turnover of Lee Cooper and a onetime know how fee of approximately Rs 10.65 crores. The exclusive licensing agreement expires on December 31, 2021. Lee Cooper is a wholly owned subsidiary of Indus-League Clothing. In the year of investment (2008) in Lee Cooper, it operated through 16 exclusive brand outlets, which has changed to one exclusive brand outlet and 285 multi-brand outlets, including 250 Future Group outlets, as of February 28, 2011.

The sales and net profit after tax of Lee Cooper have increased at a CAGR of 44% and 46%, respectively from Fiscal 2008 to Fiscal 2010. For the nine month period ended December 31, 2010, Lee Cooper had aggregate sales of Rs 71.17 crore and a net profit after tax of Rs 4.34 crore.

Turtle

Turtle is a Kolkata based manufacturer, distributor, exporter and retailer of menswear products, such as shirts, T-shirts, trousers and accessories like ties, cufflinks and handkerchiefs. Turtle retails its products under "Turtle" and "Turtle Wood" brands. In August 2007, it launched its value brand, "London Bridge", to provide internationally styled menswear products to customers at affordable prices. In the year of investment (2008) in Turtle, it operated through 31 exclusive "Turtle Wood" brand outlets and 850 multi-brand outlets, which have increased to 46 exclusive "Turtle Wood" brand outlets, 1,550 multi-brand outlets and 80 Future Group outlets, as of February 28, 2011

For Fiscal 2010, Turtle had sales of Rs 64.10 crore and net profit after tax of Rs 2.91 crore. For the nine month period ended December 31, 2010, Turtle had aggregate sales of Rs 59.10 crore and a net profit after tax of Rs 2.66 crore.

Indus Tree Crafts

Indus Tree is a social entrepreneurship engaged in the design, creation, domestic retailing and distribution, and export of a wide range of environmentally and socially sustainable products. Their products include apparel, personal accessories, furniture, handicrafts and home linen and are marketed under the brand "Mother Earth". In the year of investment (2008) in Indus Tree, it operated through four exclusive brand outlets and 16 multibrand outlets, which have increased to five exclusive outlets and 15 multi-brand outlets, including seven Future Group outlets, as of February 28, 2011.

The sales of Indus Tree have increased at a CAGR of 34%, from Fiscal 2008 to Fiscal 2010. For the nine month period ended December 31, 2010, Indus Tree had aggregate sales of Rs 7.26 crore and a net loss of Rs 2.71 crore.

Capital Foods Exports

Capital Foods Exportts is a food processing company having development and manufacturing capabilities in various processed food products, such as instant noodles, sauces, chutneys and microwavable rice and curries. It markets its products under various brands, which include "Ching's Secret", "Smith & Jones", "Raji", "Mama Marie" and "Kaeng Thai". Capital Foods Exportts has pan Indian distribution network of approximately 110 super stockists and 750 distributors and it also exports products to various countries including United States, United Kingdom, Singapore, Middle East Asia and Australia.

For the nine month period ended December 31, 2010, Capital Foods Exportts had sales of Rs 12.25 crore and net profit after tax of Rs 5.65 lakhs.

Capital Foods Limited, a subsidiary of Capital Foods Exportts, has received an in-principle approval for establishing a mega foodpark from the Ministry of Food Processing Industries, Government of India (MOFPI). Capital Foods Limited is proposing to establish this foodpark at Kolar/ Tumkur in Karnataka under the Mega Food Parks Scheme of MOFPI.

Future Ventures has further submitted an expression of intent to the Ministry of Food Processing Industries, Government of India for setting up of a mega food park at Bakrol Village, Ahmedabad District, Gujarat and at Khelgaon, Bhagalpur District, Bihar at a cost of Rs 112.10 crore and Rs 153.3056 crore respectively.

Future Consumer Enterprises

Future Consumer Enterprises is engaged in product development, designing, branding and distribution of FMCG products under brands such as "Tasty Treat", "Clean Mate", "Care Mate", "Premium Harvest" and "Fresh and Pure".

For the nine month period ended December 31, 2010 FCEL had sales of Rs 54.14 crore and a net loss of Rs 7.49 lakhs.

Future Consumer Products

FCPL is engaged in product development, designing, branding and distribution of FMCG products

under the brand "Sach".

For the nine month period ended December 31, FCPL had aggregate income from royalty of Rs 1.31 crore and a net loss of Rs 2.74 lakhs.

Aadhaar Retailing

ARL is in the business of rural and semi-urban retail distribution of agricultural and consumer products for personal and household use, including apparel, seeds, fertilizers and FMCG products. ARL is proposing to establish franchisee outlets under "hub and spoke" model with existing centers to serve as hubs and the franchisees working as a spoke. In the year of our investment in ARL, it operated through 62 exclusive brand outlets, which have changed to 51 exclusive outlets, as of February 28, 2011.

The sales of ARL have increased at a CAGR of 311% from Fiscal 2008 to Fiscal 2010. For the nine month period ended December 31, 2010, ARL had aggregate sales of Rs 47.41 crore and a loss of Rs 18.84 crore.

Amar Chitra Katha

ACK is engaged in the business of education and entertainment by way of publishing printed materials and production of animated films and to organise and conduct theatrical production and entertainment of all kinds. ACK's products are targeted towards children up to the age of 15 years.

For the Fiscal 2010, ACK had aggregate net sales of Rs 10.76 crore and a net loss of Rs 2.31 crore.

SSIPL Retail

SSIPL is a retailer of Nike branded products, a wholesaler of multi-brand footwear, sportswear and apparel, and a manufacturer and distributor of footwear. As of February 28, 2011, SSIPL operated through 124 exclusive brand outlets.

For Fiscal 2010 SSIPL had revenue of Rs 333.71 crore and a profit of Rs 4.04 crore.

Strengths

India has one of the largest consumer base in the world with approximately 500 million consumers over 18 years of age. Of this, urban India constitutes approximately 230 million consumers. By 2021, it is expected that there would be more than 125 cities having population in excess of 1 million and another 500 having population between 5,00,000 and 1 million which will offer significant opportunities in the consumption space.

Total domestic textile and apparel market is expected to be at $52bn in 2010 out of which $36bn is expected to be Apparel, $4bn is Home Textile and $12bn Technical textiles. In 2015 the domestic textile and apparel market is expected to grow to $ 89bn with share of apparel is expected to be $61bn. In 2020 the total market is expected to be $140bn with share of apparel constituting $100bn. Organised apparel market stands at 17% in 2010 which is expected to grow to 25% in 2015 and 40% in 2020 of the total apparel market.

Ministry of food processing in their Vision 2015 document has estimated the size of the processed food sector to grow three fold, processing level of perishable to increase from 6% to 20%,value addition to increase from 20% to 35% and India's share in global food trade to increase from 1.5% to 3%. Food processing industry size is estimated to be around $110 billion in 2010-11 which is expected to grow to $150 billion in 2014-15

The proposed GST (Goods and Service Tax) regime will be beneficial for FMCG and organized retail sector.

FMCG Industry is expected to grow at a CAGR of 11% from $25 billion in 2008 to $43 billion in 2013 and $74 billion in 2018. Rural retail is expected to dominate the Indian retail industry with expected total market share of 50%.

Future ventures is part of well-established Future group promoted by Kishore Biyani which has over 12 years of organized retail experience.

Weaknesses

The company's revenue and operating results will fluctuate and will remain unpredictable due to unpredictability of events such as exit from any of the Business Ventures or other factors such as changes in value of its investment or dividends paid by the Business Ventures.

The company is still making loss at Consolidated PAT levels. Future Ventures has made investments in business ventures mainly in last two years which are in nascent stage of their operations. Future Ventures ability to successfully turnaround these business ventures operationally and financially and profitably divest its stake would eventually determine the success of its unique business model.

Various entities within the Future Group have overlapping business objectives and potential conflicts may arise with respect to decisions regarding how to allocate business opportunities among those entities.

The company intends to utilize the net proceeds to create, build, invest or acquire, and operate business ventures. Any delay in finding the right opportunity or wrong choice or overvaluation at the time of investment will affect the fortunes of the company.

Valuation

Future Ventures reported operating profit of Rs 11.24 crore for nine months ended December 2010 after three years of operating losses. However it continues to report losses at PAT level.

Current book value of Future Ventures is Rs 8.9. Post-issue Book Value works out to Rs 9.4 and Rs 9.9 at issue price of Rs 10 and Rs 11, respectively. P/BV at both the bands works out to be 1.06 and 1.11 times, respectively. There are no listed companies with similar business in India, hence comparison is not possible.

Since Future Ventures' business ventures are in nascent stage of their operations, it is making loss at consolidated PAT levels. With economy on a strong footing and consumption on a sustained healthy growth path, the company expects to turnaround loss making business ventures to create significant wealth.

via CM