When Kishore Biyani sold his flagship business Pantaloons to Aditya Birla Nuvo in 2012, there were questions on where growth would come from. Five years later, and much to the surprise of his critics, Biyani’s Future Group has only resurfaced stronger, leaner and more appealing to investors. And it has carved its businesses into five listed entities.
Future Retail houses the core retail business, while Future Consumer and Future Lifestyle Fashions hold the proprietary brands for fast moving consumer goods (such as Karmiq, Tasty Treat, Kosh and Care Mate) and apparels (Central, Brand Factory, Plant Sports, All, Scullers and Jealous 21), respectively.
Logistics infrastructure has been brought under Future Market Networks, while Future Enterprise develops, owns and leases the retail infrastructure for the group. The insurance business (Future Generali) is also a part of Future Enterprise.
Source: Capitaline
Not surprisingly, most Future Group stocks have witnessed steep year-to-date appreciation (see table). The rally is backed by fundamentals with Future Retail catching most of the investor fancy. Analysts at Nomura highlight that post the business reorganisation, Future Retail has aimed to simplify the corporate structure, achieve efficiency and eliminate capital expenditure to create an asset-light model. Future Retail is among the top retail picks for Nomura and the brokerage expects more upside despite the sharp rally, given its brand equity, possible scale benefits, entry into newer formats and improving return ratios.
While Future Retail enjoys the highest investor confidence for now, analysts say others such as Future Consumer and Future Lifestyle may gain traction soon.
“As in-house labels such as Kosh, Care Mate and Scullers gain more acceptance within the Future Retail chains and outside, their stocks too will enjoy better investor appeal,” says an analyst tracking the sector. Change in business strategy from plain-vanilla sourcing to in-house manufacturing will also help Future Consumer and Future Lifestyle. Even now, their 2016-17 financial performance showed promise.
Source: Capitaline
The much talked about stake sale in Future Generali is essential to bring some relief on this front. Talks are on to divest stakes in speciality retail businesses such as Planet Sports in a move that can improve the valuations of Future Consumer. However, the street is happy with Biyani’s decision to focus on existing businesses without piling on more debt. Analysts believe this could be rewarding in the next three to five years.