IPO Review: Future Capital IPO suitable for long term

 

Future Capital Holdings (FCH), a financial services arm of the Future Group, is set to tap capital market via initial public offering (IPO) of 6,422,800 equity shares of Rs 10 each for cash, at a price to be decided through a 100% book building process. The issue will open on January 11 and will close on January 16. The price band has been fixed between Rs 700 to Rs 765 a share.

Investment Highlights

Experienced management team and talent pool of professionals
The experience and expertise of its management team and finance, operating and investment professionals is providing a competitive advantage to the company. Led by Sameer Sain, CEO and co-founder, who was formerly a managing director at Goldman Sachs International, investment management division.

Deep understanding of the retail sector
As one of India`s leading retail groups with over ten years of experience in meeting the needs of Indian consumers, the Future Group has developed a deep understanding of the retail and consumption-led sectors in India. The Future Group`s insights into consumer behaviour will contribute to advice on investments in these sectors.

Synergy with the Future Group
FCH will benefit from substantial synergies across businesses and the businesses of the Future Group. In the area of retail financial services, the company has the exclusive right to provide financial products and services at present and future malls, stores and retail outlets in India which are owned, controlled or managed by PRIL and its subsidiaries.

Unique and differentiated business model
Investment Advisory Services: Within private equity investment advisory business, in addition to investment analysis, research and recommendations, FCH actively mentor companies invested in by the fund whose investment manager, which it advise. The company is able to contribute to these companies plans for revenue growth by leveraging the Future Group to provide them with insights into the retail and consumption-led sectors as well as access to PRIL`s pan-India distribution network.

Retail Financial Services: FCH has a first of its kind retail financial services business model within organized retailing in India. This is ensured by its agreement with PRIL whereby we have the exclusive right to provide financial products and services at present and future malls, stores and retail outlets in India which are owned, controlled or managed by PRIL and its subsidiaries.

Expansion Plans

FCH plans to utilize the capital raised through this issue primarily for the expansion of the Future Money offering, in particular, the growth of its loan portfolio. This will likely to fuel the growth of the company over next few years.

IPO Grading

Care assigned an IPO Grade 3, indicating average fundamentals, to the proposed IPO of the company.

Valuation

FCH is demanding for huge premium on its shares, when compared with companies such as Reliance Capital, Indiabulls Financial Services, and IL&FS Investment Managers, based on price to earnings (P/E) multiple. The company offers shares at P/E multiple of 137.79x at the floor price and 150.59x at the cap price (based on annualised earnings per share for first half of FY08, on pre issue capital of the company). On the other hand, shares of its peers, Reliance Capital, Indiabulls Financial Services, and IL&FS Investment Managers were trading at P/E multiple of 64.72x, 27.02x and 41.41x (based on annualised earnings per share for first half of FY08 and share price as on Jan. 10, 2007), while the industry average is 42.8x. In addition, the limited financial history, together with losses of Rs 124 million in its books for first half of FY08 are cause of concern. Considering the above factors, one can subscribe to IPO of the company with a long term perspective.

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