FUTURE RETAIL LIMITED
Ratings
Amount (Rs. crore)
Ratings1*
Remarks
Long-term Bank Facilities
950
Reaffirmed
Short-term Bank Facilities
625
CARE A
[Single A]
CARE A1
[A One]
CARE A1
[A One]
CARE A
[Single A]
Reaffirmed
Facilities
Total Facilities
1,575
Commercial Paper
(carved out of working capital limits)
Long-term Non-convertible Debentures
250
Long-term Non-convertible Debentures
200
Long-term Non-convertible Debentures
600
Total Instruments
90
1,140
* All ratings continue to be under credit watch on account of the proposed amalgamation of Future Retail Ltd’s 100% subsidiary
Future Value Retail Ltd with itself.
Rating Rationale
The ratings continue to derive strength from the experienced promoters and management team, Future Retail Limited’s (FRL)
proven track record with a leading position in the organized retail business in India and pan-India presence across multiple
formats. The ratings also derive strength from the company’s ability to raise capital, on-going divestments across non-core
businesses and management focus as regards reduction of debt.
The ratings, however, continue to be constrained by moderate debt coverage ratios of FRL, working capital intensive nature of
the business and intense competition, which can adversely impact the profitability of FRL. Furthermore, the ratings continue to
factor in the support FRL may have to extend to its loss-making subsidiaries/joint ventures, until such time that they are either
financially stable or FRL’s stakes in the same have been sold.
The ability of FRL to obtain the necessary approvals towards concluding its planned disinvestments and consequently monetize
investments in its subsidiaries and joint ventures in a timely manner, improve profitability margins in the competitive industry
scenario, manage its working capital requirements efficiently amidst growing scale of operations and improve debt coverage
parameters via expected infusion of equity are the key rating sensitivities.
Background
FRL is the flagship company of the Future Group (one of India’s largest retailers). Currently, FRL is engaged in home &
electronics retailing (on standalone basis) and into value and fashion retailing through the wholly-owned subsidiary - Future Value
Retail Limited (FVRL). As on December 31, 2012, FRL, along with FVRL, had 458 stores with 14.28 mn sq ft of retail area.
This excluded the 90 stores of ‘Pantaloons’ and ‘Pantaloons Factory Outlet’ format business, which were demerged from FRL.
FRL is in the process of realigning its businesses in order to create a simplified business structure with independent companies in
hypermarket and supermarket chains (FRL), fashion (Future Lifestyle Fashions, FLFL) and food and FMCG businesses (Future
Ventures India Ltd, FVIL). FRL is also in the process of merging its 100% subsidiary FVRL with itself. The various businesses
under the three formats, post-realignment, are as follows:
1
Company Name
Nature of Business
Future Retail Ltd
Hypermarkets, Supermarkets,
Formats Included
Other Investments
 Big Bazaar
 Future Supply Chain
Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications
1
Company Name
Nature of Business
Home improvement and
consumer durables chains
Formats Included
Other Investments
 Food Bazaar
 FBB
 Home Town
 eZone
 Other specialty
formats like Foodhall etc.
Solutions
 Future Lifestyle Fashions
 Future Ventures
 Apollo & Goldmohur
Apparel Parks
 Capital First
Future Lifestyle Fashions
Ltd
Fashion company with department
stores and portfolio of companyowned private brands




Central
Brand Factory
aLL
Planet Sports







Future Ventures
Integrated food and FMCG
company with food parks





KB’s Fairprice
Big Apple
Aadhaar
Tasty Treat
Fresh n Pure
 Capital Foods
 Amar Chitra Katha
AND
BIBA
Turtle
Indus Lee Crafts
Celio
Clarks
Holii
On June 4, 2012, the private equity firm Warburg Pincus entered into a definitive agreement with FRL and FVRL to acquire
40% stake in Future Capital Holdings (FCH) for Rs.420 crore. The deal was completed on September 28, 2012. Currently,
FRL’s holding in Capital First Ltd (rated CARE AA+ / CARE A1+ for its bank facilities and non-convertible debentures) has
reduced to 9.12%. Furthermore, through other subsidiaries & JVs, FRL also has presence in retail support services, & insurance
(life & non-life through JV with Generali, FRL effectively holds 49.5% stake in the JV). FRL is in the process of selling off its
stakes in the insurance businesses.
Credit Risk Assessment
Experienced promoters and management
The promoters of FRL have been closely involved in the management of business, and in defining and monitoring the business
strategy for the company. The promoters have been regularly either infusing or raising equity to finance the growth plans of FRL.
Furthermore, the promoters are supported by a strong management team, having significant experience in retail.
Business segment
FRL on consolidated basis has presence in retail (value, home and electronics retail), insurance (life and non-life through JV with
the Generali Group) and retail support services (through various subsidiaries). The lifestyle segment of FRL has been demerged
into FLFL and FVRL is proposed to be merged into FRL, turning it into a primarily value retail company. As a result, the major
store formats that shall be in FRL are Big Bazaar, Food Bazaar, Fashion @ Big Bazaar (FBB), HomeTown and eZone.
The divestment of the ‘Pantaloon’ format business from FRL has been completed in FY13 and its contribution in FY12 (refers to
the period July 1, 2011 to December 31, 2012; hence, FY12 numbers are not strictly comparable to FY11) was Rs.2,431 crore
out of its total consolidated operating income of Rs.20,215 crore (12.03%) and corresponding EBITDA was Rs.268 crore out of
the total of Rs.2,345 crore (11.43%).
The operating details of the major store formats that would remain in FRL post restructuring are as follows:
Food Bazaar
FBB
Established in
Big
Bazaar
2001
2001
No. of cities present in
88
16
2
eZone
2011
Home Town and
HomeTown Express
2007
13
19
9
2006
No. of stores (as on
Dec. 31, 2012)
Total Area (mn. sq. ft.)
Big
Bazaar
161
Food Bazaar
FBB
eZone
26
Home Town and
HomeTown Express
39
43
7.88
0.48
0.33
0.38
0.09
38
Leadership position in organised retail
FRL is one of the leading retailers in India and along with FVRL, it occupies a total retail space of 14.28mn sq. ft with 458 stores
as of December 2012, as compared with 13.21 mn. sq. ft. and 461 stores as on June 30, 2011. This figure does not include 90
stores and 1.98mn. sq.ft. of ‘Pantaloons’ and ‘Pantaloons Factory Outlet’ format stores, which have been sold to Aditya Birla
Nuvo Ltd (ABNL). On a group level, FRL has a pan India presence in value (Big Bazaar, Food Bazaar, KB Fair price & others),
lifestyle (Central, Brand Factory & others) & home retailing (Home Town, eZone& others), and across various price points. The
large scale of operations of FRL provides greater bargaining power with various suppliers and real estate developers.
Exposure to non-core business
As discussed above, FRL has sold its controlling stake in FCH. FCH’s contribution to FRL’s consolidated income in FY12 was Rs.
1157 crore and corresponding PBT was Rs.207 crore. As part of the transaction, FRL has acquired strategic assets from erstwhile
FCH in the form of future receivables from Centrum Group entities amounting to Rs.154 crore in September 2012. Further,
FCH could require support from FRL against loans given to the Deccan Chronicle group (worth Rs. 170 crore) which has already
been taken over by a promoter group entity of FRL. The promoter group entity has also taken over the corresponding collateral
shares pledged and other securities offered against these loans.
Furthermore, FRL effectively holds 49.5% each in the two insurance JVs (Future Generali India Insurance Co Ltd and Future
Generali India Life Insurance Co Ltd). FRL has entered into a share purchase agreement with Industrial Investment Trust Limited
(IITL) for sale of 22.5% stake in its life insurance subsidiary for an amount of Rs.250-270 crore and the deal is awaiting IRDA
and other regulatory approvals. FRL plans to sell its remaining stake of 27% in FY13 as well. Furthermore, FRL has also signed a
non-binding agreement with Larsen & Toubro (L&T) for sale of its entire 49.5% stake in the general insurance business, for
which, it is expected to receive a consideration of around Rs.500 crore and this deal is also awaiting regulatory approvals. Both
these transactions are expected to conclude in FY13.
Revenue & profitability
On a consolidated basis, FRL posted a total income of Rs.20,215 crore in FY12 (vis-à-vis Rs.12,236 crore in FY11) and PAT of
Rs.345 crore (vis-à-vis Rs.144 crore in FY11). However, this PAT amount also includes Rs.379 crore of extraordinary income
on account of stake sale of erstwhile FCH and other non-current investments. The SSG growth slowed down significantly
primarily on the account of the weak consumer sentiments and subdued economic conditions. The same-store sales growth (SSG)
for FY12 stood at 7.3% for lifestyle, 2.5% for value and -2.8% for home segment while SSG for Q1FY13 for the same segments
were 9.6%, 8.1% and -4.1%, respectively. Although FRL improved its operating margins for the period under consideration, its
PAT margins (excluding income from sale of stake in FCH) declined on account of high interest costs.
Capital structure and debt coverage indicators
On a consolidated basis the overall gearing ratio has remained nearly constant at 1.62x, as on December 31, 2012, as compared
with 1.64x, as on June 30, 2011. However, the FY12 figure includes Rs.800 crore of Optionally Fully Convertible Debentures
as unsecured debt, which has since been transferred from FRL’s books on account of the sale of ‘Pantaloons’ format business to
ABNL. If we consider that amount as neither debt nor equity, then the gearing for December 31, 2012, drops to 1.43x.
Furthermore, the total debt to GCA has improved to 6.53x as on December 31, 2012, vis-à-vis 13.74x as on June 30, 2011, on
account of inflow of Rs.323 crore from stake sale of erstwhile FCH. However, with the company’s divestment of its ‘Pantaloons’
format business as well as its fashion retail business to FLFL as well as various divestments of its non-core financial services
businesses, total debt is expected to come down by the end of FY13. Further, the company also expects equity infusion in the
coming years; this is expected to further improve the capital structure of FRL and would be a key rating sensitivity for the
company.
Prospects
The Indian retail industry is currently going through a difficult phase fuelled by the weak consumer sentiments and postponement
of the purchases. Going forward, revival in the consumer sentiments, curtailing of debt funded expansion plans and efficiently
3
managing the supply chain would be critical for the industry. With the growth momentum in the Indian economy expected to
continue, albeit at a slower pace, the retail sales during FY15 is expected to surge 1.5x from FY12 sales levels, recording a
CAGR of 14.8% during FY12-FY15. Furthermore, the relaxation in FDI norms relating to multi-brand retailing to allow foreign
investments upto 51% is expected to attract a host of foreign retailers in the country. In addition, this would also prove beneficial
to Indian retailers operating in the multi-brand retailing space with new JVs being formed by the Indian retailers with their
foreign counterparts. (Source: CARE Research)
Financial Performance (Consolidated)
For the period ended / as at Mar.31,
Working Results
Net Sales
Total Operating income
PBILDT
Interest
Depreciation
PBT
PAT (after deferred tax)
Gross Cash Accruals
Financial Position
Equity Capital
Networth
Total capital employed
Key Ratios
Growth
Growth in Total income (%)
Growth in PAT (after D.Tax) (%)
Profitability
PBILDT/Total Op. income (%)
PAT (after deferred tax)/ Total income (%)
ROCE (%)
Average cost of borrowing (%)
Solvency
Long Term Debt Equity ratio (times)
Overall gearing ratio(times)
Interest coverage(times)
Term debt/Gross cash accruals(years)
Liquidity
Current ratio(times)
Quick ratio(times)
Turnover
Average collection period (days)
Average creditors (days)
Average inventory (days)
Operating cycle (days)
4
(Rs. Cr)
2012
(18m, A)
2010
(12m, A)
2011
(12m, A)
9,051
9,817
861
510
278
174
61
389
11,328
12,236
1,053
615
308
284
144
499
19,056
20,215
2,345
1647
632
483
345
1037
41
3,375
7,657
43
4,181
11,442
46
4,178
11,266
27.4
-
24.6
137.1
10.1
59.5
8.78
0.62
9.38
12.45
8.61
1.18
9.41
11.06
11.60
1.71
12.47
16.12
0.82
1.47
1.68
8.68
1.10
1.64
1.71
10.54
1.17
1.62
1.42
4.78
1.63
0.93
1.21
0.55
1.16
0.39
14
48
97
63
14
57
102
59
15
69
126
72
DISCLAIMER
Shri. V.K. Chopra, Rating Committee Member is a Non-Executive Director on the board of Future Retail Ltd. and hence, the note is not sent to him. To comply
with the regulations, the Member is required not to participate in the rating process and the Rating Committee Meeting and press disclosure about the same is to
be made by the CRA.
CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or
hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however,
guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of
such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank
facilities/instruments.
5
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