Saturday, December 9, 2017

A Cautionary View on Future Group stocks

The erstwhile promoter of Pantaloon Retail - a debt-laden company subsequently sold to the Aditya Birla Group - used to be a market darling. 

Aggressive growth at the cost of profits led to his downfall. But you can't keep an ambitious entrepreneur down for long. He reappeared as the promoter of Future Group of companies.

Regular appearances at industry seminars and recent forward-looking statements to various TV channels about becoming one of the leading players in the retail segment had caught my attention.

Two recent articles in motivated me to look a little closer at Future Group stocks. The first, published on Dec 7, had a headline: Future Supply Chain IPO subscribed 72% on Day 2.

The second, published on Dec 8, had a headline: Future Consumer Spikes 15%; Morgan Stanley initiates Overweight; sees 61% upside. My mental 'alarm bells' started ringing. Was this article 'planted' to ensure full subscription of Future Supply Chain?

There are already several listed Group companies - Future Enterprises, Future Lifestyle Fashions, Future Consumer, Future Retail, Future Market Networks. Now, Future Supply Chain. What is going on? 

Ambition to succeed is fine - but should it be at the cost of gullible small investors? Future Group can hardly be compared to Tata Group, Birla Group,  Ambani Group or Mahindra Group. So many listed companies seem like a ploy to raise (and siphon off?) money.

Here is a quick look at the fundamentals of Future Group companies (based on Mar '17 annual figures from

1. Future Enterprises: Sales - Rs 3782 Cr; Net Profit Margin - 1.09%; P/E - 59.4
2. Future Lifestyle: Sales - Rs 3877 Cr; Net Profit Margin - 1.18%; P/E - 146.2
3. Future Consumer: Sales - Rs 1645 Cr; Net Profit Margin - 0.46%; P/E - 1359
4. Future Retail: Sales - Rs 17075 Cr; Net Profit Margin - 2.15%; P/E - 67.6
5. Future Market: Sales - Rs 82.5 Cr; Net Profit Margin - (20.8)%; P/E - (36.2)

The five listed companies have a total debt of almost Rs 7000 Cr, and are barely making any profits. How will they service their debt? By raising more equity or, even more debt? The same operating pattern of top line growth at the cost of non-existent bottom line is getting repeated.

Can a leopard change its spots? Caveat emptor.

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