The brands in its kitty may be alive and kicking, but Future Ventures India is still a long way off from the profit goalpost. The low-priced IPO comes as a whiff of fresh air, which can open up investment avenues for long-term investors hungry for taking more risks
Company Name: Future Ventures India
Issue Date: April 25-28,2011
Issue Size: 750 crore
Price Band : 10-11 per share
FUTURE VENTURES INDIA (FVIL) is an unconventional Non-Banking Finance Company (NBFC) from the Kishore Biyaniled Future Group, which is tapping the primary market with an initial public offer to raise 750 crore. The price band has been fixed at 10-11 per share and the number of shares on sale will differ accordingly. The IPO will bring down promoters' stake to somewhere between 52.5% and 55%. The company plans to invest around 125 crore in its existing businesses while the rest will be used to create, build, invest, acquire and operate business ventures in growing "consumption-led" sectors and other corporate purposes.
FVIL is classified as a nondeposit taking NBFC, but for all practical purposes operates in the space of fashion and food brands. It is sort of a venture capital, which mainly invests in equity capital of emerging businesses in consumptionled sectors. However, in most cases, the company doesn't have any predetermined exit strategy, quite unlike any venture capital. Again, it is into management control and operations of its investee companies, which is not customary for an NBFC.
Apart from capital investing, FVIL also operationally manages and strategically mentors these businesses with a view to building bigger and better brands leveraging Future Group's in-house knowledge of the Indian retail industry. FVIL has also tied up with Pantaloon Retail for mentoring services. Currently, FVIL has 14 business ventures in which it has picked up equities. Six of these ? Adhaar Retailing, Future Consumer Enterprises, Future Consumer Products, Indus League, Indus Tree Craft and Lee Cooper ? are classified as subsidiaries. Some of the prominent directly-held business ventures include AND Designs, BIBA Apparels and Holii Accessories.
Capital Foods is its investment in food processing industry with brands such as Smith & Jones, Mama Marie and the like.
At a consolidated level, FVIL is currently a loss-making company in spite of some of its subsidiaries making profits. Four of its businesses are currently loss making, which include FVIL's joint venture with Godrej Agrovet for rural marketing, Adhaar Retailing, Celio Future Fashions, Amar Chitra Katha and Holii Accessories.
The company has invested 742 crore till December 31, 2010 in its ventures predominantly in the form of equity. The company on a stand-alone basis doesn't have any borrowings, but borrowings of its arms make consolidated debt-equity ratio at 0.24. Its consolidated cash flows have turned positive in a 9-month period ended December 2010 after several years staying negative.
Considering it as a branded product company in the fashion industry, its post-IPO market capitalisation will be around 3.2 times its estimated net sales of FY11. Peers such as Kewal Kiran Clothing, Page Industries and Zodiac Clothing are trading in the range of 1.7 to 4.2 times their net sales.
Since the company has substantial exposure to equity financing, the risk is high and timeframe for earning returns is long. There appears to be neither a pre-determined exit strategy nor any assurance of returns.