Looking At A Bright Future

Retail czar Kishore Biyani has ramped up his holding in Future Consumer (FCL), the food and FMCG arm of the Future Group, by buying shares worth ₹137 crore. As per exchange disclosures, on March 28, promoter entity Future Capital Investment picked up 5 crore shares at ₹27.51 apiece. Following the deal, the entity’s stake went up to over 8% from 5.06%.

Over the last one-year period, the promoters' holding had remained more or less at the same levels. As on December 2016, the promoters held 43.4% stake compared with 43.57% in the December 2015 quarter.

The stock is gaining attention as organised retail is expected to gain further traction amid the government’s push towards digital economy. The thesis is that demonetisation will drive more consumers to transact through the electronic medium and, thereby, dent competitiveness of local kirana shops. The stock has gained 52% since the Modi government banned old currency notes in November. During the same period, the benchmark Sensex gained 9%.

The Future group has been going through a restructuring process to revive its profitability and pare down its debt. The group, whose debt stood at ₹6,500 crore as on FY16, has been selling assets such as the fashion retail business (Pantaloons) and focusing its energies on the food and FMCG business.

The company is also beefing up its own brands in its retail outlets to drive profitability. The focus is more on the food space. FCL’s key brands include Golden Harvest, Premium Harvest, Kosh, Nilgiris, Tasty Treat, and Fresh & Pure. Food and beverages account for about 94% of the brands business, while the balance comes from the home and personal care portfolio. Of the brands business, around 93% of Future Consumer’s topline comes from its in-house brands. By piggy-backing on the distribution network of Future Retail, the consumer business is expected to expand its reach. Currently, Big Bazaar and Easyday stores contribute 68% to the company’s topline.

Incidentally, institutional investor interest remains muted in the stock with foreign portfolio investors holding 9.19% stake as on December 2016 against 8.52% in the year-ago period. Mutual funds hold a measly 0.86% stake (13,263 shares) in the company. Retail investors (individual holding nominal share capital upto ₹1 lakh) seem to have taken to the story of Future Consumer’s potential revival with their stake going up by 128 basis points from Q3FY16 to 6.23%.

However, only time will tell whether the retailer will indeed be a big beneficiary of the government’s cashless push.