Future Consumer LtdQ4 FY17Retailing

Future Consumer Ltd

Q4 FY17 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

N/A

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 3 growth signals are positive.

Full analysis

Revenue guidance

Category 2

→Future Consumer aims to become a premier FMCG goods company with significant sales growth.
→Recorded a 40% top line growth over the previous year, with 16% sequential growth from Q2 to Q3 FY16.
→Brands business growth is at 46%, constituting ~76% of total company revenue.
→Expect gradual margin improvement, targeting around 20-27% in the longer term depending on product mix.
→Focus on building value-added product lines like oats, wafer biscuits, and value-added dairy to enhance margins.
→Expansion plans include opening 37-38 hypermarkets, 200-300 small stores, and distributing through 5000 PDS stores in Rajasthan by June.
→Plans for wider distribution covering 7000-8000 pin codes, focusing on semi-urban rather than rural markets.
→Increase in product launches and new brand introductions expected to drive revenue growth.
→Reorganization to focus on FMCG and distribution, relinquishing capital-intensive retail operations via franchising to improve profitability.

Margin guidance

→Future Consumer Enterprise reported a healthy Rs. 46 million EBITDA in Q3 FY16, showing improvement from operating loss in Q1 and breakeven in Q2.
→The brands business grew 46% in nine months, constituting about 76% of total revenue.
→The company expects margins in the brands business to increase gradually, targeting around 20% and potentially up to 26-27% in the longer term, depending on product mix and sales of higher-margin value-added products.
→Moving convenience stores to a franchise model is expected to reduce operating losses of Rs. 25-35 million per month, improving profitability.
→Expansion into value-added products and new categories, along with strong brand advertising (e.g., Tasty Treat), supports revenue and margin growth.
→Organizational strengthening and manufacturing capacity expansion are expected to contribute to improved operating efficiency and earnings growth going forward.

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Fundraise plans

Yes

→Future Consumer Enterprise Ltd. has announced a fund raise of approximately US$55 million, consisting of:
→ - US$10 million from promoters.
→ - US$45 million from the investor Black River (a fund spun off from Cargill).
→Promoters have already paid an initial 25% of the warrant application money.
→The Investment Agreement with Black River was executed on January 25, 2016.
→The company is awaiting regulatory approvals to proceed with the issuance of equity to Black River.
→No explicit mention of any new debt-based fundraising during the call.
→The focus seems to be on equity infusion to support growth and brand building.

Order book

The provided document (pages 1-11) does not explicitly mention any details regarding Current or Expected Orderbook or Pending Orders for Future Consumer Enterprise Limited. The discussion primarily revolves around: - Business performance and growth (40% revenue growth, improved margins). - Retail franchise model transition and financial impacts. - Expansion of distribution network (currently operates in 244 cities, covering 6000 pin codes). - Manufacturing units progress (Food Park with multiple factories, rice and flour mills operational or near completion). - Brand development and product launches. - Fundraising and strategic partnerships (Black River investment, JV with Mibelle Group). No information about outstanding order book size or pending orders was disclosed or discussed in the transcript.

Capex plans

Yes

→The Food Park is a key capital investment focus, with multiple manufacturing units being developed and operational by June-July 2016, including rice mill, flour mill, dips, ketchup and sauces plant, frozen lines, pulping lines, and wafer biscuit factory.
→Leasing more than 15-20 acres to around four parties, with more than five additional factories coming up, aiming for 40 manufacturing plants operating by year-end.
→Investment in an oats factory in Sri Lanka that started trial production.
→Building dairy capacities near Mumbai and in the East for short shelf-life products.
→Expansion of hypermarkets (37-38 openings planned) and 200-300 new small stores.
→Strategic distribution expansions: 5000 stores via Rajasthan PDS model and distribution established in Gujarat and Punjab.
→Recent fund raise includes US$ 55 million (US$ 10 million from promoters and US$ 45 million from Black River) aimed at financing expansion.

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