ValuePickr Forum

Future Consumer Enterprises Ltd

(Kumark) #62

Hi All,

what you all think about the new acquisition? My few questions and points; Also add more information for learning purpose.
Its very good deal and bargain, but inorganic growth of this extent is really required (already many in past)?
Debt on FRL book is not significant (265 cr), but the equity dilution, money movement(155cr) & margins will affect few quarter results(how long?).
Mr Biyani expecting about 15-16% contribution from hypercity in 12 months and going to achieve 35% in FBB business in those stores later years.
Hypercity stores are in very good locality, can yuo confirm? is it going to help them significantly?
Mr Biyani wants to reduce the debt but in this deal i feel 70% deal in equity was good deal and this will not affect his plan,
Whats the amount required for the working capital in these stores for both hypercity products & bigbazar?

(Samir) #63


Hypercity should be tending towards “Haiko” (Hiranandani Mall) model; which ends up pushing brands which are not necessarily our usual Levers/P&G/Godrej/Britannia products - these end up being “private label” - thereby giving margins to the hypermarket owner. Additionally, with FCL pushing his private label in Consumer space and Foodmall - Hypercity provides FCL a good platform.

Disc: Invested in Future Consumer from IPO and averaged up

(Gorthi) #64

Is anybody can confirm about Neligiries Operations …in terms of where it sales consolidates whether in Future retail or future consumers…
My doubt here Neligiries sells its own brands like Diarie products and pulses under Neligiries brand, Cleanmate …golden harvest etc under FCL brand and again most of other brands of p&g,ITC etc…
It seems to be basic question …but still it would appreciated if someone confirms. Thx.

Dis: Invested.


I doubt benefit from the deal.

Despite being in operation for so many years, hypercity is still making losses.
Though Raheja has experienced management( K Nagesh and others), and been running Shoppers Stop for many years, they have not been able to turn it into profits.

Big Bazaar focus on value segment. Recently, Biyani said he want to turn that into departmental store.

Where does HyperCITY fits in future portfolio?

Biyani said he doesn’t want to focus on niche segment (that’s why he’s selling Home Town and fabfurnish).
HyperCITY is also focusing on niche.
Quite contradictory.

IMO, Raheja have realized that Retail is very tough business and despite being in business since 1991, they have tough time managing it. Shoppers Stop still making losses.

That’s why they sold 5% to Amazon and this is just beginning IMO.

Getting rid of HyperCITY was part of the plan and that’s why they sold it cheaply to Biyani.

Walmart has sales to market cap ratio of 2:1.

So compared to above, I don’t think HyperCITY was very cheap deal.

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Now about all the hype regarding private label and how they help to achieve better margins…

This report says by 2025, share of private label will be 15% overall.

Now, assume private label command better margin by 5-7%.
Assumptions for above are -

  1. Cost of manufacturing and packaging is almost same
  2. Saving will be done for marketing and upto some extent for distribution as well
  3. Thus this result in almost 20% difference
  4. But this private label will be priced at average 10% (variation from 5 - 20%) cheaper than their traditional FMCG label (most of them have to be cheaper, otherwise there’s no reason for customers to opt for them)
  5. Thus net gain will be 7%(additonal margin) of 15%(total sale of private label) =7*15% = 1.05% margin increases overall

Private label have greater % sale in discount retailers such as Dmart or German retailer like Aldi.
Even in Walmart case that % is at 25%.

HyperCITY being a hypermarket, that % share has to be less than that of discount retailers.

So honestly, I don’t think private label will be a significant contributior either for hypercity.


Nilgiri has sale of Rs 650 Cr in 2013 and yet it got sold for yet Biyani bought it for Rs 300 Cr in 2014.

Thats less than half sale of last year.
This shows brutality of retail business

Also, if you read carefully, nilgiri operate very differently from other modern retail stores when it comes to sourcing of goods.

I wonder how Biyani able to integrate such different chains under one roof and where is the synergy in buying?

I am a retailer (apparel) and I have studied retail management (done MBA from NMIMS).

I will say Indian retail market is already very well established.

Where we are lacking is -

  1. Efficiency and inventory management - none of the retail whom I know focus much on this
  2. Distribution and transportation - it takes too much time for goods to travel
  3. And many more…

IMO, what we read in media about organized retail and comparison with western market is more of PR action rather than true reflection.

Organized retail will grow in India and it won’t be similar to what we see in western market.

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(Samir) #68

I tend to agree broadly with you however there is one element which is critical but extremely difficult to find data around it - is the Selling expenses e.g. advertising for private label tends to be lower. Furthermore, most FMCG goods (large part is MNCs) have a Royalty factor attached to it - this could as high as 8% of sales in cases with an average of 4-5% of sales.

My sense is these two contribute to the increased margin. Look to receive views.

Discl: Invested

(Samir) #69

As regards sale of Nilgiris - understand Actis had to sell it - most PE funds have a finite life - they were invested in the same for over 6 years. furthermore, i tend to agree with the brutality aspect of the business - it needs tailwinds and 2012-14 was the time the FMCG sector did take a hit with the economy headwinds; that Biyani sensed an opportunity to get this at 50% of sales is “muke pe chaukka”. My sense is Niligiris lack of scalability outside of S India and unwilling to invest further did them in. Welcome you views given you are an insider.

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(Kumark) #70

You both have a great points and of course with the industry tailwind & rerating from D-Mart i believe FMCG & retail in full focus now. If hypercity doesn’t deliver as Niche then it can be converted into Big Bazar type modelling easily?. One more important point is Online retailing from Amazon(also brick & motor) and big basket is catching up, howz the impact going to be? are they going to take the market share? Though Biyani seems to be confident that its not going to affect.


I found following link to give an idea about advertising expense and royalty payments

Adding both still comes below 20% that I have assumed.

So my hypothesis is still valid


I am still stuck about nilgiri acquisition.

How that one helps is still difficult to understand.

Nilgiri operates on decentralized model while Future Group operate on centralized model.

They operate much smaller store compared to big Bazaar.

Since both were already competing, I assume many of store will be targeting same set of customers.

So now where’s the synergy? What exactly Biyani gained from this acquisition, apart from boost in revenue in short term.

What about the pain and risk to integrate two entirely different companies (both culturally and operationally)

Same question raised for hypercity as well.

HyperCITY target premium segment and thus most of it’s location are within malls.
Even if Biyani decides to convert hypercity to big Bazaar, he won’t be able to afford rent / expenses on store basis

So what’s rationale behind this acquisition?

I understand he got them cheap but he got them cheap because they were in trouble

Biyani has poor record of turning troubled companies into profitable business.

Please explain the rationale behind your investment in future groups?

They operate through very vague structures and there is restructuring going on all the time. Please check my earlier article I posted from livemint.

Or am I missing something?


Reason for acquiring your competitors can be many, I used Google to find out more -

Put yourself in Kishor Biyani / any retailer shoes and consider you got an offer to buy Spencer / Nilgiri / xyz…

Why would you buy it -

  1. You are able to get crucial locations (either they were owned by your competitors or they are located in long term lease agreements for very low price)

  2. You both operate almost similar line of business -
    This will give you bulk volume advantages and you can negotiate with your vendor better

  3. You are entering / getting entirely Virgin territory -
    You are not having any business in area of operations of your competitors

  4. Patent / spectrum / license / technology -
    This doesn’t apply to retail business

  5. Customers -
    You are getting customers that were previously locked in with your competition.
    Again, this may apply to software but this doesn’t apply to retail business

So what does Biyani gets from buying these entities?

Question to ponder

1 Like
(Nikhil Goyal) #74

I havent followed the Nilgiris acquisition, but have followed the Hypercity acquisition. The reason it was sold was it was not performing well under Raheja.

The question here is does it benefit future consumer enterprises and future group? Both of these needs to be looked at separately.

Future Group
As far as future group goes, they should only buy this if they are better off with Hypercity, against without it. How can they be better off?

  1. Operational Synergies between Big Bazaar and Hypercity
    a. Bulk purchase power.
    b. Ability to better manage private labels between big bazaar and hypercity, without hurting the vendors. For example, if 100 units are promised to brand A, Hypercity can better take a significant chunk of the same, and allowing big bazaar to take up more private labels.

  2. Business Synergies: Locations, access to new areas, income groups

  3. Skill synergies: Although hypercity has not been managed well by Raheja, Big Bazaar has been one of the success stories for Biyani. Either we can look at it in this way, that Big Bazaar management can help reduce inefficiencies in Hypercity. However, what @nikhildoshi said can also be true, that Biyani has poor record of converting poor performers.

So, my view is, clearly there are synergies in buying out Hypercity, however, it will take a lot of effort on Biyani’s front to make that happen.

Future Consumer

The two benefits that adds up to future consumer:

  1. Added locations/distribution channel
  2. More private labels can be pushed.

From the cost perspective, I dont think there is anything that future consumer is paying. Hence, it should benefit from this.

Disc: Invested from 33 levels.

(Nikhil Goyal) #75

Just to add, Future Group needs to define how they want to position these units into the market, as one or separate? If separate, what are the characteristics they will exhibit. Only then, it will be possible for us to say whether they will achieve the mentioned synergies.

(rvetri) #76

Very clearly every entity will retain their entity names. Like Heritage and
Nilgiris. They operate in their own names. Infact KB has made it clear that
the mega expansion plans from 1 - 2k small stores to about 10K small stores
will be in the names of Nilgiris , heritage, Easy day etc. And their
strategy on their own private labels is also clear. From currently their
pvt label sales is 35% of their retail sales ( BB/Nilgiris/Easy
day/Heritage) put together…And they want to take this to 65% in 4 - 5 yrs.
And 4 - 5 yrs later their retail biz expected to fetch Rs 60k crores. And 2
thirds of that is Pvt label sales ( Future Consumer )…So, the easy winner
seem to be Future Consumer. And KB repeatedly says he owns a FMCG co which
has a good retail distribution…Ofcourse these numbers will be real only
if they play out as per management guidance…

Disc: Own FC and FR as more than 15% of PF. views are biased.

(Samir) #77

I will concede two of your points upfront:

  1. Biyani has a poor record of turning around companies
  2. Operating Model of Nilgiris and BB are different.

Before I get into details, my investment is in Future Consumer and not Future Retail or Future Lifestyle or Future Supply Chain. I am not sure if this has come out clearly and the thread has been for Future Consumer. Therefore, my focus has been less on Turnaround of the Retail chain as a whole. The investment of Future Consumer is independent of other Biyani companies.

My rationale is as follows:

  1. Creation of brands: despite all the noise and views around India consumption story - there are very few home grown brands that are being built in India in the consumer/food space at at USD1 billion company.
  2. While total addressable market is what it is with numbers swinging from INR 1,00,000 cr to INR2,00,000. The key is shifting of those from unbranded to branded segment. My understanding is the dal/atta/etc categories would see a move which Tata Salt brought in the 80s and 90s.
  3. Management: Biyani understands brands very well. What bailed him out in the past life is Pantaloons the brand - not so much the retail infra story (while it played it part) but debt did him in. My sense is he has become extremely sensitive to debt and uses it judiciously. Importantly, he has brought along partners on the FCL platform which are real long term - the Family money of Arisaig which will help strategically and IFC which helps in reducing debt.
  4. How do Future Retail and future Consumer connect: Here i agree they are joined at the hip. Future retail stores provide the shelf space to FCL private label products. Something which became a bane of Hypercity as it was debt fueled growth at Hypercity. Here in FCL the debt is actually getting reduced - it is possible that it is increasing in Future Retail.


(Nikhil Goyal) #78

Yes, thats about it. FCEL and future group are to be looked at separately. :slight_smile:

Future Consumer gets additional space with lesser effort, and their bid to make brands out of privates is what the bets on.

Future Group might break or make, depending upon how they handle the merger. If it fails, then future consumer retail space goes down, and that’s how it can be affected. However, worse would be Biyani selling it back to save Big Bazaar.

(Samir) #79

Let us pick-up the last point (i know this is not how one review, but for a minute if you bear with me); who does Biyani sell it to in a hypothetical situation: two suitors Reliance Retail or Amazon. If it is the latter, you are no worse off however cannot say for the former.

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(Nikhil Goyal) #80

Yes. The point I wanted to make was FCEL as a company is not risked as much as the future group because of the acquisition.

(Samir) #81

Interesting headline comment from Future Retail - this man is critical along with Kishore Biyani…