Future Ventures IPO Review and Analysis – Unique Indian Consumption Private Equity/Venture Capital Company with Cheap Valuation is a Good Buy

Future Ventures is a VC/Private Equity Company that has invested in a number of small Indian companies and startups mainly focused on the consumption industry in India.With India growing at around 8-9% in the last few years and expectations of strong future growth driven by consumption,Future Ventures seems a good investment considering the portfolio of companies that it owns (analyzed below).Future Ventures is a part  of the Future Group run by Kishore Biyani who started India’s most famous retail company Pantaloons.The Company has set a price band of 10-11 rupees a share with a target of raising around Rs. 750crore though the IPO.This would represent around 40% of the equity which would give it a post IPO market capitalization of around $375 million.Note the company had tried to come with an IPO 2 years ago but it was deemed to expensive at that time.

Future Group

Pantaloon Retail is the leading company of the Future Group and has been used to start a number of different businesses in India related  to the comsumption goods and retail like

1) Retail Companies – Future Bazaar, Central, Big Bazaar, Food Bazaar, Home Town and E-zone

2) Consumption and Finance Companies- Future Capital Holdings, Future General Insurance, Future Supply Chain, Future Agrovet, Future Media, Future Brands,

Future Ventures History

Future Ventures was started in 1996, as Subhikshith Finance & Investments. The company was acquired in  2007 by Future Value Retail a subsidiary of Pantaloon . Futures Ventures  is regulated by the RBI as a systemically important NBFC.The company invests in businesses which are strategically important to the group’s retail business.

Future Ventures Investee Companies List and Details

Future Ventures has invested in 14 companies mostly related to India’s Consumption Industry with Textiles/Fashion/Apparels Industry being the biggest investment sector.Makes sense also as Pantaloon is the biggest fashion retailer in India.

Textiles/Fashion Investments

1. Indus-League Clothing ( Neutral investment,85% Stake) Indus-League Clothing  again has top of the line brand names in the textile retail sector and enjoys very good brand recall with “Urbana”, “Urban Yoga”, “Indigo Nation”, “John Miller”, “Scullers”.The company is growing at slower growth rates though it is the largest textile name in Future Venture portfolio with around $40 million in sales,however net margin is extremely low at 2%.
2. Celio Future Fashion (Good Investment,~43% Stake) Celio is a JV  between Celio and Indus-League in the men’s apparel .Has expanded rapidly to  20 exclusive brand outlets and 70 multi-brand outlets with sales growth above 200% in 2010 ($6.5 million) with net margin of 18%.
3. Lee Cooper (India) (Good Investment,84% Stake) Lee Cooper is the biggest brand in India’s Jeans and Shirts Category.This company  has a 15 year exclusive license ending 2021 to manufacture and market “Lee Cooper” products in India for 3% royalty.The company has shown an impressive growth of over 40% CAGR though net margin is low at 6%
4. AND Designs (Good investment,23% Equity Stake ) AND Designs is present in  women’s apparel market, with focus on western wear.It has  44 brand outlets and 158 multi-brand outlets.The company has got a premium brand name in the Indian market and has presence in the major malls in Indian cities.A good brand to own.The company also has solid financials showing growth of more than 50% CAGR in revenues and with around Rs 58 crores in profit with more than 12% Net Margin.
5. Biba Apparels (Good investment,13% Stake ) Biba Apparels is also involved in the women’s apparel segment. It has around  68 brand outlets and 133 multi-brand outlets.The company has slower growth rates of around 25% CAGR and a lower net margin of around 8%.However the  company also enjoys a significant brand name in the urban Indian consumer’s mind
6. Turtle ( Neutral investment,~23% Stake) Turtle is a Kolkata seller of men’s apparel and is also like other companies has well known brand name.The company’s growth though has declined in 2010 and net margin remains low at around 4%.
7. Holii Accessories (Too small to Tell) Holii is ja JV between the Company and Hidesign India which sells fashion accessories leather products under the brand name “Holii”. The company is still quite small with revs of  less than $1 million and has operating losses.

Future Group Companies

Food Industry

1. Capital Foods Exports ( Neutral investment,41% Stake ) It is a food processing company selling brands like “Ching’s Secret”, “Smith & Jones”, “Raji”, “Mama Marie” .It also exports these product though sales are still quite small at around $3 million with net margin of breakven.The company is looking to expand rapidly by building Food Parks.
2. Future Consumer Enterprises (Bad Investment)– It produces and sells brands in the Food Space like  “Tasty Treat”, “Clean Mate”, “Care Mate”, “Premium Harvest” and “Fresh and Pure”.Again not much profit in the competitive sector
3. Future Consumer Products(Bad Investment) –Very small company owing and selling the “Sach” brand with almost negligible revenues and profits.

The last 2 investments don’t make much sense,they should be combined with Capital Foods Exports as having 3 companeis doing pretty much the same thing leads to unnecessary costs .

Rural Retail

Aadhaar Retailing (Too Early to Tell) – Aadhar is present in the  rural and semi-urban retail sector. The company has been growing impressevely though it has incurred a major loss of Rs 19 crore last year which means a Net Margin of -40%.However it is growing its business and time will tell whether it will become big or not.

Footwear Retail

SSIPL Retail (Neutral Investment,6.5% Stake).SSIPL sells footwear from Nikie and has more than 100 exclusive stores.The biggest company in terms of revs with Rs 334 crore however Net Margin is quite pathetic at only 1.5%

Green and SRI Retail

Indus Tree Crafts (Neutral Investment,52% Stake) Indus Tree is in the  social entrepreneurship sector sellling Green and SRI products under the brand “Mother Earth” .It has a low number of outlets at only 5 exclusive and running at a loss.The company sells premium products which is out of the afforability reach which may restrict its growth despite its “Green” tag. crore.

Education

Amar Chitra Katha (Good Investment)– The company sells the most well known brand in the Indian comic space and has a large loyal following with again top brand recall amongst Indian consumer however sales are still quite low at less than $3 million and is running at a loss.The business has huge potential if executed upon.

Future Ventures will continue to own a  significant stake in portfolio firms so to have managment control and may look to divest portfolio companies through M&A or IPOs to exit its investments at an appropriate time

Advantages of Future Ventures

1) Valuation – The company is not expensive at around 1.1x post IPO book value.Note while the company has not made profits in 3 of the last 4 years it was due to the fact its companies are mostly in the startup phase when they are scaling up with losses.However a number of the companies are earning profits which is a good sign in the last year.The growth trajectory of most of the companies are also above 20%.The company has not earned a profit in the last year so the Future Ventures P/E ratio is not of much use.Normal valuations metrics and measures is not easily applied to a holdings/asset management company especially which is involved in Venture Capital.Book value gives a decent idea about the valuation

2) Good Portfolio – In the portfolio analyzed below you can see 5 good investments with only 2 bad ones in my opinion while others are neutral or too early to tell.I would be willing to buy 5 of these companies which makes Future Ventures a good stock buy

3) Management – Kishore Biyani is a 1st generation entrepreneur who is known as one of the best minds in the retail space in India and Future Ventures has a good management team with both operation and financial expertise.

4) Industry – Future Ventures is a unique Private Equity/Venture Capital story which is not easily available to investors focused on the rapidly growing Indian consumption industry.

Disadvantages of Future Ventures

• Conflict of Interest – Not a major disadvantage as all Indian companies have that on a much bigger scale.Some of the companies owned operate in the same industry and are competitors.However the parent Future Ventures manages this conflict of interest would be interesting to see
• No Investment Exit Till Now- Till now Future Ventures has not managed a single exist despite good stock market conditions in the last year.Successful investment of a couple of companies will show the true mettle of the management.
• No Access to  Galaxy Entertainment Corporation Limited Prospectus which is strange –  “We had undertaken an initial public offer of their equity shares. Galaxy Entertainment Corporation Limited was acquired by our Promoters from the erstwhile promoters of Galaxy subsequent to its initial public offering of equity shares. We do not have access to the offer documents and other records of Galaxy”
• Loyalty Payments for use of “Future” trademark – They have to pay Rs 1 crore as loyalty which increases a whopping 144% to Rs 2.44 crore in 2015.I think they could have done without the name as “Future” does not have a huge brand name in India ( Pantaloon does though).

Summary

Future Ventures seems a good buy to me given the inexpensive valuation,leverage to Indian’s Consumer Durables and Fast Moving Consumer Goods (FMCG) sectors,decent portfolio and reasonably decent management ( tough to find in the Indian stock markets).Given the junk and crap IPOs that keep hitting the Indian market which is a pump and dump IPO heaven for market operators,this issue looks pretty good.Not consumption focused companies in India have given good returns in recent times which have good brand names like Lovable Lingerie