Future Ventures India IPO Review by MLR Sec (Avoid)

Review By MLR Securities Private Ltd on April 26, 2011

Issue Date: 25-28th April
Price Band: INR 10-11
Issue Size: INR 7500/8250 mn
Mcap: INR 15762/17339 mn
Public Holding: 47.58% (Post Issue)
IPO Grading: CARE IPO Grade 3
BRLM: ENAM, JM Financial, Kotak

Future Ventures India Ltd is (FVIL) is a non deposit taking NBFC. It is a part of Future Group, founded by Mr Kishore Biyani. FVIL's business is to invest and operate in emerging businesses in Indian consumption led sectors like Fashion, FMCG, Food Processing, Home Products, Rural Distribution and Vocational Education.

Financials & Valuations

The company has invested in 11 business ventures, 6 of them are FVIL's subsidiaries
Indus League Clothing (INR 3,828 mn), Future Consumer Enterprise (INR 1,600 mn), Aadhaar Retailing (INR 774 mn) and Capital Foods Exports (INR 451 mn) account for a total of 90% of the standalone investment book of INR 7,424 mn
The investments accounted for 90% of the total assets on the standalone balance sheet of FVIL which is debt free
On a standalone basis the current book value is INR 10 which is the lower end of the IPO Price Band, however some of the business ventures have made losses post FVIL's investment which is reflected in lower book value of INR 8.9 on a consolidated basis
The consolidated balance sheet has INR 3,160 mn worth of goodwill which amounts to INR 3.8/share, assuming the goodwill is written off the book value on a consolidated basis will come down to INR 5.1
The company on a consolidated basis has shown improvement at the EBITDA level over last few years, the EBITDA margin for 9mthFY11 was 3.5% vs (0.4)% for FY10, however it is still making losses at the PAT level

Investment Strategy

At the lower end of the IPO Price Band, the stock is valued at 1.9 x consolidated book value of INR 5.1 (adjusting the goodwill). On an EV /Net Sales basis also the stock is valued 1.9 x annualized Net Sales for 9mthFY11. The issue proceeds will be invested in current and new ventures in similar lines of business and looking at the past and current trends of profitability for FVIL and other group businesses the issue does not looks attractive and we recommend avoiding this issue.