Future Ventures is entering the capital market on 25th April 2011 to raise Rs. 750 crore via public issue of equity shares of Rs.10 each, priced between Rs. 10-11 per share. The issue, constituting about 45-48% of post-issue paid-up capital of the company, depending on the price discovered (likely to be at Rs. 10) closes on 27th April for QIB bidders and on 28th April for retail and HNI bidders.
The Indian equity market is rarely witnessing an IPO priced abysmally low, between face value and a rupee higher. It would have been a fixed priced issue, but for SEBI's rule mandating the book building route on account of high equity dilution being undertaken by the company . This is the company's second innings for tapping the primary market, albeit a sharply trimmed down size from earlier over Rs. 3,500 crore unsuccessful attempt.
Another primary market offering from the stable of Kishore Biyani's Future Group, their largest till date (after Future Capital Holdings' Rs. 490 crore IPO in January 2008), Future Ventures invests in 'consumption-led' growth stories in India with focus on creating and mentoring brands in the fashion, FMCG, food and rural distribution space. A systematically important non-deposit accepting NBFC, it holds investment in 14 'business ventures' (as referred to by the company) including names such as Indus-League, AND, Biba, Holii, Lee Cooper, Ching's Secret, Smith & Jones, Tasty Treat, Clean Mate, Fresh and Pure and Sach.
The funds raised via the IPO will enable the company to invest in additional business ventures. However it is yet to identify these new business opportunities. Probably, that explains why SEBI cleared the IPO with a rider (which existed even during the company's earlier attempt for IPO) that it has to necessarily deploy funds raised in the IPO within 3 years, else will be required to return the un-deployed funds back to its shareholders. Another SEBI rider is that the company must compulsorily seek shareholder approval if investment in a single venture exceeds Rs. 150 crore (i.e. 20% of IPO size).
Company has entered into several agreements with group companies (listed and unlisted) such as:
- Consultancy and Advisory Services Agreement with Future Capital Holdings for recommendation on investment in business ventures and exit strategies
- Mentoring Services Agreement with Pantaloon Retail in relation to growth of business ventures
- Master Service Agreement with Future Corporate Resources for governance, risk mitigation, HR and IT
- Master License Agreement with Future Ideas for use of Future Group trademarks
Agreements 1 and 2 above provide a maximum annual outgo of 1% each of the company's adjusted networth, once the networth crosses Rs. 1,000 crore mark (which happens with this IPO), translating to approximately Rs. 15 crore fees to each of the two companies. Additionally, agreements 3 and 4 amount to about Rs. 1 crore annual outgo each to other group companies. Thus, Future Capital and Pantaloon Retail stand to draw annual consultancy / mentoring fees of upto Rs. 15 crore each, post Future Venture's IPO.
For FY10, on a consolidated basis, company posted total income of Rs. 178 crore and net loss of Rs. 9 crore. During 9mFY11, total income rose to Rs. 400 crore thanks to increasing sale of retail merchandise while net loss widened to Rs. 15 crore. Current equity stands at Rs. 826 crore which will expand to about Rs. 1,508-1,576 crore post-issue, seen quite high. Promoter stake, currently at 59.38%, will reduce to about 31-33% post-IPO, while Bennett Coleman's shareholding will drop from 12.1% to about 6.5%.
Its consolidated BVPS of Rs. 8.94, as on 31-Dec-2010, is below the par value, but does not give a correct picture as most of the company's investments are in businesses in high growth phase and books of accounts do not capture fair value of these unlisted companies, as per conventional accounting principles.
As on 31-Dec-2010, company's consolidated fixed assets stood at Rs. 255 crore, of which, over 50% was comprised of trademarks. Besides, it also had goodwill on consolidation of Rs. 316 crore. Company has relied only on equity to finance its investments, since debt of Rs. 178 crore, as of 31-Dec-2010, pertains only to subsidiaries.
Coming on to the pricing, issue price is likely to get discovered at the face value, which will be the same rate at which the promoters have invested in the company since 1996 to as recently as August 2010. With an eye-catching price tag, investors can apply for the issue as the share seems to have limited downside from face value while it has potential to be a low risk-high return bet, given India's developing economy being fuelled by higher domestic consumption and Future Group's expertise in retail.