Brief Rationale
September 17, 2013
RATING RATIONALE-CUM-PRESS RELEASE
CARE ASSIGNS ‘CARE A’ RATING TO THE PROPOSED NCD ISSUE OF
FUTURE RETAIL LTD
Ratings
Amount
(Rs. crore)
Instrument
Non-Convertible Debentures
300.00
Total
300.00
Ratings1
Remarks
CARE A
[Single A]
Assigned with credit
watch*
* The above rating is on credit watch on account of proposed merger of FRL’s 100% subsidiary FVRL with
itself along with realignment of fashion business.
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 14.28mnsqft 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.
1
Complete definition of the ratings assigned are available at www.careratings.com and other CARE
publications
Credit Analysis & Research Ltd., 4th Floor, Godrej Coliseum, Somaiya Hospital Road
Sion East, Mumbai – 400 022. INDIA Tel # 022 6754 3456 Fax # 6754 3457
Brief Rationale
The various businesses under the three formats, post-realignment, are as follows:
Company Name
Nature of Business
Formats Included
Other Investments
Big Bazaar
Future Supply Chain
Food Bazaar
Solutions
Hypermarkets,
FBB
Future Lifestyle
Supermarkets, Home
Home Town
Fashions
Future Retail Ltd
improvement and
eZone
Future Ventures
consumer durables chains
Other specialty
Apollo &Goldmohur
formats like
Apparel Parks
Foodhall etc.
Capital First
AND
BIBA
Fashion company with Central
Turtle
Future Lifestyle
department stores and Brand Factory
Indus Lee Crafts
Fashions Ltd
portfolio of company- aLL
Celio
owned private brands
Planet Sports
Clarks
Holii
KB’s Fairprice
Big Apple
Integrated food and FMCG
Capital Foods
Future Ventures
Aadhaar
company with food parks
Amar Chitra Katha
Tasty Treat
Fresh n Pure
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. The proceeds of the
above NCD will be utilized for refinancing of debt.
On consolidated basis, FRL reported PAT of Rs.345 crore (vis-à-vis Rs.144 crore in FY11) on total
income of Rs.20,215 crore (vis-à-vis Rs.12,236 crore in FY11) during FY12 (refers to the period July 1,
2011 to December 31, 2012).
During H1 2013, FRL reported a total income of Rs. 4,592 crore on a consolidated basis and loss of
Rs. 20 crore. FRL posted loss as it excludes high margin fashion formats i.e. Pantaloon (sold off to
Aditya Birla Group) and Central, Brand Factory, Planet Sports & aLL (being demerged into Future
Lifestyle Fashion Ltd) leading to lower PBILDT margin against higher interest and depreciation
expenditure (on account of high capital expenditure) and also it includes discount season which
leads to lower margins for retail companies.
Credit Analysis & Research Ltd., 4th Floor, Godrej Coliseum, Somaiya Hospital Road
Sion East, Mumbai – 400 022. INDIA Tel # 022 6754 3456 Fax # 6754 3457
Brief Rationale
Analyst Contact
Name: RashmiNarvankar
Tel: 022-67543429
Email:[email protected]
CARE has classified instruments rated by it on the basis of complexity. This classification is available at
www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to
[email protected] for any clarifications.
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.
Credit Analysis & Research Ltd., 4th Floor, Godrej Coliseum, Somaiya Hospital Road
Sion East, Mumbai – 400 022. INDIA Tel # 022 6754 3456 Fax # 6754 3457
Brief Rationale
CARE is headquartered in Mumbai, with Offices all over India. The office addresses and contact
numbers are given below:
HEAD OFFICE: MUMBAI
Mr. D.R. Dogra
Managing Director
Mobile : +91-98204 16002
E-mail : [email protected]
Ms. Meenal Sikchi
Vice President –Bank Loan &
Instrument Rating
Mobile: +91-9819009839
mail: [email protected]
Mr. Rajesh Mokashi
Dy. Managing Director
Mobile +91-98204 16001
E-mail: [email protected]
Mr.Ankur Sachdeva
Vice President – Banks & Financial
Services
Mobile: +91-9819698985
E-mail: [email protected]
CREDIT ANALYSIS & RESEARCH LTD
HEAD OFFICE 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway,
Sion (East), Mumbai - 400 022 |Tel: +91-022- 6754 3456 | E-mail: [email protected] |
Fax: +91-022- 6754 3457.
KOLKATA | Ms. Priti Agarwal | Cell: +91-98319 67110 | Tel: +91-33- 4018 1600/ 1602 |
E- mail: [email protected] | 3rd Flr., Prasad Chambers (Shagun Mall Bldg), 10A,
Shakespeare Sarani, Kolkata -700 071
CHENNAI | Mr. V Pradeep Kumar | Cell: +91 9840754521 | Tel: +91-44-2849 7812/2849 0811 | Fax:
+91-44-2849 0876 | Email: [email protected] | Unit No. O-509/C, Spencer Plaza, 5th
Floor, No. 769, Anna Salai, Chennai - 600 002
AHMEDABAD | Mr. Mehul Pandya | Cell: +91-98242 56265 | Tel: +91-79-40265656 | Fax: +91-7940265657 | E-mail:[email protected] | 32, Titanium, Prahaladnagar Corporate Road,
Satellite, Ahmedabad - 380 015.
NEW DELHI | Ms. Swati Agrawal | Cell: +91-98117 45677 | Tel: +91- 11- 2331 8701/ 2371 6199 |
E-mail: [email protected] | 3rd Floor, B -47, Inner Circle, Near Plaza Cinema,
Connaught Place, New Delhi - 110 001.
BENGALURU | Mr. Dinesh Sharma | Cell: +91 9900041975| Tel: +91-80-22117140 |
E-mail: [email protected] | Unit No. 8, I floor, Commander's Place, No. 6, Raja Ram
Mohan Roy Road, (Opp. P F Office), Richmond Circle, Bangalore - 560 025.
HYDERABAD | Mr. Saikat Roy || Tel: +91-40-40102030 |
E-mail: [email protected] | 401, Ashoka Scintilla | 3-6-520, Himayat Nagar | Hyderabad 500 029.
PUNE | Mr. Rahul Patni | Cell: +91-78754 33355 | Tel: +91-20- 4000 9000 |
E-mail: [email protected] | 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda,
Senapati Bapat Road, Shivaji Nagar, Pune - 411 015.
JAIPUR| Mr. Rahul Jain | Cell: +91-9314921496| Tel: +91-0141-4020213/14 |
E-mail: [email protected] |304, Pashupati Akshat Height, s Plot No. D-91, Madho Singh
Road, Near Collectorate Circle, Bani Park , Jaipur – 302016.
Credit Analysis & Research Ltd., 4th Floor, Godrej Coliseum, Somaiya Hospital Road
Sion East, Mumbai – 400 022. INDIA Tel # 022 6754 3456 Fax # 6754 3457