FUTURE ENTERPRISES - SURESHOT WEALTH CREATOR IN THE LONG TERM

                               Future Enterprises Limited (FEL), of the FUTURE GROUP the backend company of the man who pioneered the organised indian retail industry, Kishore Biyani, formed after restructuring of whole group into meaningful subdivisional entities , demerger of Future Retail in 2016 which now has three major operations: leasing, manufacturing and investments, the major income of which comes from leasing out the furniture, fittings etc assets to future group companies  ( lease rental 600- 650 Cr p.a.). The company also serves as a holding company for the many of the groups allied businesses & potentially fruitful ventures. Other main demerged companies of the group include Future Lifestyle (FLF), an integrated lifestyle fashion business & Future Consumer (FCEL) foraying into food division. This demerger & segregating of businesses into separate entities has led to unlocking of value to shareholders of respective businesses without carrying the load of other unwanted businesses as was evidenced in previous avatar of future group conglomerate.

                         POTENTIAL OF ITS INVESTMENT

                         FEL is a myriad of multi faceted businesses all in good health, waiting to unleash their full potential. Here's a look at them  as per FEL Analyst Meet held on 9th May 2016  - 

It has been a year since that presentation & both now listed entites FCEL & FLF have gone up 150 - 200% of their then value as regards their current market cap, which shows the potential growth that these underlying investments have locked in them. A rough calculation by me -

                                                                                                                                      Rs in Cr.

Ofcourse the company has debt humongous debt of over 4500 Cr, costing them around 500 Cr p.a. as interest costs. Mr Biyani had started process restructuring last year & will continue to sell off stake & pare debt. among them are monetization of FSCL, FCEL, FLF (already done ), sale of further stake in FSCL, Gen. Ins, Life Ins, Staples & IPO of Future Supply Chain Limited, the logistics arm of the group which serves outside clients as well earning more than 40% revenues from outside future group, & with the vast network & infrastructure of Future Group & especially after GST its value is going to swell more than ever in the long run.

Well you might believe he wont sell any stake or do any of the above discussions made at analyst presentations, have a look at his previous discussions regarding restructuring made on 9th November 2012, which had sought to unlock shareholder value by sorting out the complex maze of businesses into an asset light business & listing FLF , now a 6000 Cr Mcap company , unlocking shareholders' wealth multiple times in 5 years.

      Even if it does not want to, IT HAS TO...as you can see it has timely debt obligations to redeem & pay off (apart from interest exp which will be met by most of internal accruals), which will trigger the stake sale & listing of subsidiary to fund the repayments.

                                             FEL DEBT OBLIGATION TIMELINE

                          Prepared from information available in FEL Annual Report 2015-16 

                                                         FEL EARNINGS & EXPENSES

FEL Earnings from the lease rental stands at Rs 550-750 crore and from manufacturing at Rs 100-300 crore. Thus rental income is fixed cash inflow, from the fast growing future group businesses (FCEL & others), while it also receives earnings from textile manufacturing units in Mumbai- Appollo & Goldmohur mills , the products of which are sold through the established franchise FLF.  

                         

                                                          POINTS WORTH NOTING

• It has recommended dividend of 0.20 per share (10%) for FY 16-17.
• As on 31 Mar 17 , has tangible fixed assets of 6250 Cr, equity & reserves of 3821.01 Cr .
• Book value of 70 Rs per share, double than CMP of 34 Rs on 22 June 2017 (was trading at 19 last year). Thus it is safe from downside risks as it has ample backing of real assets & hence in the long run, it has no way but to go up.
• Revenue from Operations of 16-17 Rs 4013 Cr is 2.50 times more than current Market capitalization of FEL 1600 Cr. Value of its subsidiaries & ventures currently is 7200 Cr , more than 6 times its market cap, which could easily grow to 11-12000 cr in the long term. 
• Almost 100 companies which have reduced their debt more than doubled investors’ wealth in the last one year article circa 2016.... Sign of things to come.
• FEL have appointed auditors & consultants (refer BSE news item dated 22/05/17 ) CA DMKH , whose specialities are: "Consultancy in the field of Company Law matters, IPO Planning,Merger & Demerger and Business Restructuring etc."
• GST will give a big push to organized sector, thus FCEL & FLF are expected to perform even better. Mr Biyani has after restructuring pulled the right strings & got the whole future group on track. He now has an aggressive aim to reach out to nooks & corners of the country & multiply group's turnover by 5 times to 1 Lac Crore til 20-21. The spree of acquisitions by him over the past years proves it. Having a stake & lease rental income from these units will consequently add to FEL's income.
• Expected increase in EPS due to savings of interest expense (in the long term on debt being pared significantly) should multiply shareholders' wealth by many times -

With a company guzzling out EPS in late single digits & assured cash inflows through rentals which are enough for further acquisitions of fixed assets, one can assume a good market capitalisation. Infact after the debt has completely written off i even expect EPS to go in double digits in the long term. With that EPS, one can easliy assign even a nominal P/E to come at a huge increase in valuation from current levels. Future Enterprise Ltd is the giant elephant in the room, & it has just started to move.

Links -

FEL ANNUAL REPORTS 

FEL ANALYSTS PRESENTATIONS

P.S.- [Note:  FLF had already been divested fully in late 2016 I had taken it to give the complete picture of investments of FEL & FCEL was divested after this blog was written.]
There are few points i havent covered due to lack of time, valuation part & some analysis could seem amateurish, but i wil slowly improve upon it in the long run. Your comments & suggestions are welcome.

Disclaimer -

This is not an advisory service to buy or sell nor an offer inducing to buy or sell. The contents of “this research report” are only for educational purposes. Its only meant to describe company's features, advantages,  No liability is accepted for any content in “this research report”. The author is neither a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time.The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions.