Future Ventures’ Initial Public Offer offers a unique opportunity to invest in a company akin to a venture capital fund. While the company has already made investments in firms across different fast-growing segments like FMCG and retail, which it plans to continue doing, valuations look reasonable too. The uniqueness is unlike a venture capital player, the company usually also takes management control and nurtures the businesses. On this front, its strong parentage (owned by Kishore Biyani-led Future group) comes handy and should help minimise risks associated with investing in start-ups.
While its IPO is priced attractively at Rs 10-11, there are issues such as volatile revenue stream, uncertainty over turnaround, lack of a proper exit/monetising strategy and possibility of delay in deploying the IPO proceeds fruitfully that investors will have to live with. Thus, patient investors with appetite for risks could invest in the IPO.
HUGE GROWTH POTENTIAL
While the company is more of a venture capital player, it is regulated by the RBI as a systemically important non-deposit taking NBFC. It currently has investments in 14 companies, six of which are its subsidiaries. Some of the company’s major investments include AND Designs (promoted by Anita Dongre), Biba, Indus League Clothing (John Miller, Indigo Nation branded apparels), Lee Cooper, Turtle, Capital Foods Exports (Ching’s Secret, Smith & Jones, etc), Future Consumer Enterprises, Future Consumer Products, Aadhar Retailing and Amar Chitra Katha.
| LOSSES: A CONCERN | |||
| In Rs crore | FY09 | FY10 | 9M FY11 |
| Total Income | 131 | 178 | 400 |
| Ebitda (%) | -32.1 | -0.4 | 3.5 |
| Net loss | -56 | -20 | -23 |
| Source: Company RHP | |||
| ISSUE DETAILS | |
| Price band (Rs) | 10-11 |
| Size (Rs crore) | 750 |
| Opened on | 25th April |
| Closes on | 28th April |
| Care Ratings | 3/5 |
The company is looking to further tap the high growth potential of the Indian consumption demand. Macro factors such as high GDP growth and favourable demographics are fuelling India’s consumption and should benefit players like Future Ventures. In addition, Future Ventures can draw significant synergies from strong group companies like Pantaloon Retail and Future Capital (with whom it has signed different agreements) in identifying and capitalising on new growth avenues.
From the total IPO proceeds of Rs 750 crore, over 80 per cent will be invested in emerging businesses in the consumption led industries like FMCG and fashion, and the rest (about Rs 125 crore) will be used towards growing its existing businesses.
SOME RISKS
However, the company has not identified the new business opportunities, and any delay could adversely impact its growth prospects—in the interim the proceeds are likely to be deployed in low interest generating investments.
Future Venture’s financials are also likely to be variable, as these will be contingent on the timing of its exit from its business ventures (most of which are unlisted and in the nascent/growth stages ) and dividends these ventures declare. Further, while its revenues have grown at a decent pace, it is still making losses at the consolidated level. Thus, its ability to start churning profits quickly and consistently will have a bearing on its future growth trajectory.
FINANCIALS, VALUATION
Future Venture’s total income has grown at a compounded rate of 487 per cent over FY08-10. More importantly, recently it has also posted operational profits as well as generated positive cash flow from operating activities for the first time in three years. For the nine months ended December 31, 2010, it reported an operating profit of Rs 14 crore while cash flows stood at Rs 103.8 crore. However, it continues to make losses at the net level.
Of its seven loss-making business ventures, the management expects Celio (a men’s wear and accessories manufacturer) and Aadhar Retailing (distributor of FMCG and agri products in rural and semi-urban areas) to achieve break-even in FY12. The company hopes to report profits at the consolidated level in the next couple of years.
While there are no listed comparables, the IPO pricing of Rs 10-11 is close to the existing book value of Rs 8.94 and suggests that valuations are reasonable.
