Future Consumer Enterprises Ltd


(Priyank Kothari) #1

Future Consumer Enterprises Ltd.

Management:

  • Entrepreneur who has proved a model which was not dreamt till 2000 in India. Has been quite successful in attempting and creating a culture of Shopping from Malls.

  • Set Up one of the strong Distributions set up.

  • In my view management has been quite candid in lots of his interview about his mistakes done after the first big success and after realizing that he has been accepting it publicly and has taken gr8 steps to improve it.

  • The Management has strong record of execution and implementation of such large retail projects and understanding the consumers expectations in India.

Business:

  • 20% i.e. more than 25 cr ppl visit Big Bazaar, Food Bazaar,and other Future retail joints. The highest Footfalls are in Big Bazaar. This comprises the Major Middle Class and emerging Middle Class Bracket of People.

  • Mr. Biyani believes that the advantage of Demographics would add close to another 30 cr plus Future Groups potential customers.

  • The Company has in my understanding has clearly demarcated his business in to 3 divisions, a) Retails i.e. a Future Retail, b) Food and FMCG a FCEL and c) Fashion apparel a Future lifestyle.

  • His earlier diversification into various products, like appliances, finance, luggage, etc (basically he targeted every money which a consumer spends). But realized that its more of a mess than success. So he has focused his strategy to 2 large areas where a consumer spends and where Future group has a strong foothold and is confident of scaling it. The 2 areas are a) Fashion Apparel and b) Food and FMCG.

  • Food and Apparel are one of the biggest spending brackets of middle class, compared to elite.

  • At present more than 40% (as reported in media) of Bigbazaar and Food Bazaar sales comprises of Future groups private label item. That means without advertising a single product on television, he is able to sell large part of his pvt label food products in Bigbazaar to customers i.e. ~25 cr ppl app.

  • FCEL focuses on all the private label food & FMCG items manufactured or sold in Future Retail outlets.

  • FCEL Focuses on 3 main areas a) Food Park, b) KB Price Store and c) Aadhaar Market.

  • Food Park is 110 acre Food manufacturing plant, which could procure raw materials and provide direct customers to all farmers, mandis etc in the radius of 300 kms of its location. ( Loc: Tumkur, Karnataka)

o A Food Park can handle variety of food related work. In my reading through various available public information is that the company would be working in a similar way it developed brands in Pantaloon at early stage, The company could develop variety of new Food Brands under private label.

o The Focus is not only on Private label, it could also focus on tieing up with established player for new or existing products.

o As per Mr. Biyani, a Food park of this size could generate close to 5000 a 6000 cr of sales in a year and that could also grow. He is expecting to achieve revenue of 10000cr in FCEL by 2020.

o This will be the First Integrated Food Park in India. One of the main reasons for success of Food park is the cost management and second is the Distribution and Logistics setup. If you can scale and reach mass the food park could be a big manufacturing hub of food products.

o As per the available information from the website and from my personal experience from visiting various Big bazzar joints, FCEL at present is not into manufacturing non veg products, However they have egg based cakes of monginis sold in Future retail( not a part of FCEL).

  • Second is the KB Price Store, which is like in my knowledge kirana store with a Franchise model. If he is able to scale that , it could be big on long term, as a typical kirana would have limitation in no. of SKUas, but a KB price, would have an advantage due to 1 point sourcing and inventory management helping it to get more SKU to sell.

  • Aadhaar is JV with Godrej, it is like rural mall concept.

Valuation:

  • I am not very confident what can this company be valued, as its still at initial stage and the Food Park is still to start in this year. How the park turnout would is to be seen.

  • However comparing other global companies in China and other developing countries, I feel if This food park is able to achieve the success, than the company could atleast maintain the 1 times Mcap/sales ratio.

  • At cmp of 10 with mcap of 1600 and cash of 250 cr the stock has EV of Rs. 1350. Revenue at present is 900 cr with marginal Loss at the PAT level.(Loss cld wipe out or could increase, difficult to judge at current level of business)

MOATS:

At present I am not able to figure out any big MOAT, except to some extent the Distribution, loyal customers, Brand, Logisitical set up.

However, I believe that if the company is able to create strong food brands like it did for BIBA, AND in pantaloons, it could start creating a moat i.e. stickiness of customers towards its food products. Like at present large set of consumers coming to Future stores, purchase Tasty Treat products, which have variety of eatables under this label.

But I also believe that similar private label could be easily done by competitors like reliance, and donat see why they too canat scale. However the difference would be the management spirit and execution capability, which always was the difference in Big Bazaar and any other food malls.

RISK:

Success of the Food Park is the key to the emergence of this company.

I do not recommend anything. This is purely for my own understanding and tracking. My views are completely personal and it could be challenged with different thoughts and that is welcomed

https://www.youtube.com/watch?v=b2IcUQm9wjo

http://priyank-kothari.blogspot.in/


(Varadharajan Ragunathan) #2

I have a poor opinion of kishore biyani’s abilities as a capital allocator - he starts too many businesses, does not focus enough to make them profitable enough and deliver value to shareholders.

He started mobile phone retailing, KB’s fair price shop etc. etc. but a lot of them just ate away shareholder’s money.

Remember that in most businesses, shareholder wealth is made through focus - focus on efforts, business and execution.

Future Consumer Enterprises Ltd.

Management:

  • another 30 cr plus

  • a a

a Future lifestyle.
*

  • A Food Park a

  • SKUas,

  • donat canat

https://www.youtube.com/watch?v=b2IcUQm9wjo Link: https://www.youtube.com/watch?v=b2IcUQm9wjo

http://priyank-kothari.blogspot.in/ Link: http://priyank-kothari.blogspot.in/


(A. King) #3

News item suggests Future Retail is applying to become “Payments Bank”. If they get the banking licence, it can be a serious banking player (Payments Bank = Low margin, high volume transactions) with 2000+ retail outlets.

Any comments?


(A. King) #4

It appears Future Retail to become Payments Bank rather than FCEL. So, if this thread is for FCEL and the news doesnot apply here, my apology.

http://economictimes.indiatimes.com/industry/banking/finance/banking/future-group-to-seek-payments-bank-licence/articleshow/45960006.cms


(..pd..) #5

@raghunathan : the reply is in your own comment. Yes, he had initiated many ventures in the past which didn’t work out. And there comes the role of ‘experience’ . Let us not forget Mr. Biyani is the guy who made it possible for the middle class people to go into flashy malls (Read Big Bazar, pantaloon).

One point Priyank missed here is recent acquisition of Nilgiris (if I am not wrong) which will start showing up in the topline of FCEL.

My take: 1) Asset richcompany

  1. Proven management

  2. Food Park will be the game changer

  3. Nilgiris will give FCEL strong brand visibility.

  4. Azim Premji has made some investment recently.


(Aravind Sankeerth) #6

Its not a place to put your hard earned money. The man who manages it is careless, imagine if he gets into some issue or has problems in person, whats going to happen to the one man show empire.


(Priyank Kothari) #7

This is an interesting event happened in future group. And it throws some strong view on fcel also.hidden between
lines.


(Varadharajan Ragunathan) #8

The thing is simple - kishore biyani’s capital allocation track record is terrible - he has always focussed on topline growth, raised money and debt and taken the business to the cleaners time and again. Even now, it’s repeating itself - look at the number of brands - how can one company launch 20 brands at the same time ?

If someone is launching 20 brands, they are not brands - they are just labels which have no premium and are pushed into the market.

I am not able to think of one brand he has built which has pricing power and can command a premium across India.

Look at his own announcements - not one has the words profitability, cash flow in it. Few years down the line, when minority shareholders are staring down the barrel, he is going to move on again to another hot game then - from retail big format to retail small format to now FMCG/food parks to perhaps something else.

Heads I win, tails you lose


(jainaj) #9

good observation - Vradharanjan. I read some reports where Kumar Mangalam Birla were bragging about their acquisitions and devoting paragraphs to it. But no mention of shareholder value. This depicts the mindset.


(Varadharajan Ragunathan) #10

Read prof. bakshi’s reports - people who concentrate on empire building and want to make the biggest, largest, trans national etc. typically eschew profitability for mindless scale and growth

KB is firmly in that category - I have not seen him scale up one brand well. in 2002 it was pantaloons, 2004-2006, big bazaar, 2007-2010 it was KB fair price, mobile retail 2010- ezone
2012- ecommerce 2014 - FCEL

all of them are duds now - how terrible profitability. he is starting the same game all over again with FCEL - not even P & G or HLL launch 20 brands together - key to shareholder value is focus and taking one brand at a time

A little bit of second level thinking would unravel these issues easily.


(Priyank Kothari) #11

Good Observation Varadharajnr,

However you in your own statements made some interesting facts, that though he did not scaled any brands, but he scaled the Big bazaar, (which is the only profitable retailer), he scaled Pantaloon ( and sold it),

The difference between HLL and FCEL would be HLL will spend more on its product brand while Future group would be focusing more on its formats and make them as convenient to its customers to buy products. Why is HLL and P&G and ITC inspite of such big brands have to factor in Big baazar in their sell stragey , its due to its mere presence and foot falls of conusmers are its destination, so he cant be ignored.

What you said about his past is right that he has made mistakes in capital allocation and which i feel he is candidly agreeing it in media and wants to not repeat the same mistake again.
He is talking ROCE%, he is focusing on it and wants to focus on profitability. In lot of interview in last 2 years KB is accepting its mistakes and wants to focus now on profitability than scale.
however th e business in which he is scale is very important, there were Birla, tatas and reliance, but no one had the fire in the belly to scale retail the way he has, as he understands consumers much better.
I have my own notions that some how this guy has llearnt from his mistakes and is taking some steps which are right now unclear but in my view are falling in a place where KB could have his niext big wave in the country.
He does not want to create brands, he wants to give more optins to the consumers to buy , inner way increase bandwidth of its internal brands with more vareity of products.
His annual reports and lot of media talks about this new business gives a lot of sense about this new business. I beleive that the nature of Food and FMCG business is net net not loss making and if a company who has distribution, manuifacturing, sell touch points etc and is avaialbale at close to 1800 cr mcap with no debt on books, and which is going PAN india and vision to be 20Kcr in next 6 years.
Please keep sharing negative / positive thoughts to make sense about this company
I could be bias, endowment effect.

Disclosre: I continue to hold this stock in my portoflio and no material change (+/- 1%) in my porfolio has been done in recent past.


(amit anam) #12

Couple of Brands which KB nurtured and sold at premium is Indian traditional ware BIBA, which is quite polular among womens. Another good brand is DJ&C, available at big bazaar.

Here the focus is not on brand, but good quality consumer packaged items at lower price, as compared to other biggies.

I have visited Big Bazaar near my place and found them to be pushing inhouse brand such as Tasty Treat and Golden harvest.

One can get a feel if one visits the selling point of products.

Disc : holding, hence +vely biased,

Amit


(amit anam) #13

Promoters released close to 5 crore (50 million) pledged shares from IDBI Bank Ltd & ECL Finance Limited.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/7ABDAC7C_FE4C_4B12_856D_19B77DD66C9D_110437.pdf

Previously also company purchased from open market close to 30 Lakh shares on June 26th & June 29, through Block deals on BSE & NSE.

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/4834872D_52A4_49B5_8384_772B30317266_180940.pdf

Rgds
Amit


(Priyank Kothari) #14

The Below link is from Business Today Magazine which has interviewd Kishore Biyani on his thoughts on their future Plans.


(Marathondreams) #15

Few months old interview from Kishore Biyani

http://www.exchange4media.com/marketing/kishore-biyani’s-future-consumer-enterprise--targets-rs-20000-crore-business-by-2021_63626.html

I am still confused about difference between FCEL and Future Retail .Who owns BIG Bazar, Easy day all the retail format stores in bit of puzzle to me. With Bharti retails merger with Future retail, things got bit murky as now they have created another entity named Future Enterprises Ltd.

Anybody tracking Future group can clarify.


(Marathondreams) #16

Another interesting interview from Kishore Biyani. Patanjali growth helping Big Bazar. FCEL annual growth is estimated to be 40-50%! Margins in double digits…

If executed properly with focus on margins, this can be a game changer!

Disc: started small tracking investment. Need to understand corporate structure to see if minority shareholder will get benefitted or not


(dr mehul shah) #17

The details of the arrangement is like this
http://profit.ndtv.com/stock/future-enterprises-ltd_pantaloonr/reports


#18

The link in above post Points to a page which is not updated beyond 2013.

So it doesn’t help much.

Regarding, Patanjali and executions, I don’t think it going to be a game changer because -

  1. Patanjali products are flooding the market, they are available in their own brand shop, traditional retailers, modern retail as well as online.
    So it’s not customer who want to get Patanjali has to go to BB (big Bazaar) to get it, he can get it from anywhere

Regarding margin, Patanjali offer roughly 10% margin to traditional retailers, modern retail might get (5-10% extra), so it’s not big enough difference

Also, BB carries a large number of products lines, % share of Patanjali products in overall sales of BB shouldn’t be more than 6-10%
( FMCG constitute 30% of overall sales, now maximum exposure Patanjali can have is 20 - 30%, so that equals to 6-10%)

Now even if they get few more % margin on Patanjali, that can’t have bigger impact on bottomline.

IMO, Patanjali tie up is nothing but another PR

Disclosure - not invested


(Priyank Kothari) #19

I agree to Nikhil’s View,
That Patanjali is another PR activity by KB. However, there are 2 things which i take it from this relationship

a) Patanjali now available @ BB, may get in many loyal customers of Patanjali to visit BB ( which sells a lot of other products of its own brand and other brands - that too at discount to most other kirana stores). And i believe that Patanjali is available at lot of other stores and also @ BB, If any additional patanjali Loyal customers drops in to BB store, he/she just dont buy Patanjali. There are bouquets of other products which he/she MAY B for his/her own use.

b) Patanjali has a very large Food Park in Northern India close to Haridwar, at the time of getting into relationship with KB, in the press they had give an intent that if required KB shall also enter into further tie for mutual product development, or standalone product development at Patanjali’s facility in northern India similarly Patanjali can access similar plant facility in Southern India where KB is owning a Food Park.
(Leveraging of assets could be huge cost saver)

This are just my takeaways from the relationship, I may be positively biased.

Disclosure: I continue to HOLD the Stock of FCEL. I dont recommend BUY or SELL.


#20

Though slightly deviating from topic, I would like to share following article regarding Patanjali

IMO, though Patanjali is successful and growing but all the hype surrounding Patanjali is more of a function of PR than anything else