ntaloon sales
16.00% |
24.00% |
| FCH's loan book | 2112.00 | 4704.00 |
| Net interest income (15% spread) | 316.80 | 705.60 |
| Fee-based and other income | 103.00 | 176.00 |
| Total Income | 419.80 | 881.60 |
| Operating profit | 167.92 | 352.64 |
| Net profit | 109.15 | 229.22 |
| EPS (post issue)* | 17.33 | 36.38 |
| P/E Multiple (x) | 20.00 | 20.00 |
| Value - Future Money and other business* | 346.50 | 727.67 |
| Value - Investment advisory * | 143.00 | 214.00 |
| Fair value* | 489.50 | 941.67 |
| * Rs/share |
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Wide reach and ready customer base
FCH has an exclusive right to sell its financial products and services in Pantaloon's present and future retail outlets in India, which are owned, controlled or managed by PRIL and its subsidiaries.
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| This arrangement provides FCH an access to approximately 400 Pantaloon stores across 40 cities occupying a space of 7 million square feet in the form of Pantaloons, Central, Big Bazaar, Food Bazaar and other formats like Home Town, E-Zone and Electronics Bazaar, which it plans to expand to 30 million square feet by FY10.
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The company can also benefit from large and ready customer base. For example, during FY07, there were 150 million customers visiting Pantaloon stores across the country. Thus the company can save on customer acquisition, which generally costs 4-5 per cent of loan value.
| IN GROWTH PHASE | | Rs crore (consolidated) | FY07 | H1FY08 | | Total income | 38.93 | 31.27 | | Total expenditure | 34.00 | 42.50 | | Operating profit | 4.93 | -11.23 | | Net Profit* | 3.50 | -12.40 | | * after minority and tax |
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Some risks
The company does not have a past financial track record as it was incorporated in October 2005 and Future Money was launched in June 2007. Moreover, the company is currently making losses.
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| Another risk is dependence on the growth of Pantaloon Retail initially till the time it achieves its plans of building network outside of Pantaloon Retail. Also, customer loyalty is an issue as price sensitive Indian consumers would want to try different outlets for making a best deal.
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| Last but most importantly, in case of a default, the company has indicated that it may have to write off the entire value of the asset,which could impacting its profitability. Further, unlike in case of a home or auto loan, there is no organised market for resale of the assets and it is not easy to assess the value.
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Long term bet
Based on sum-of-parts valuation, the company's price band looks reasonably valued when compared with its FY10 fair value and seems to provide an upside.
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| We have assumed a growth of 50 per cent each in FY09 and FY10 in the company's assets under management (AUM)of approximately Rs 4,000 crore ($1 billion) and a valuation of 15 per cent of AUM. Further, its retail financial services and others are valued at 20 times its price to earnings multiple.
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| The issue is suitable for long term investors with at least two-three years horizon and an appetite for risk.
Issue opens: January 11, 2008
Issue closes: January 16, 2008 |
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