Saturday, July 11, 2015

FCEL - CMP 16 - FMCG Powerhouse in the making, Catch it Young.!!!


This backward integrated company, which sells white label FMCG goods, offers cheapest and best groceries in the shops, under its own Brand, which allows it to offer the highest value proposition while protecting its Margins, FMCG will be becoming a huge revenue and profit generator, and the most crucial part of the companys strategy. In the next 5 years, the management plans to increase its FMCG business to 10,000 Cr from present 1500 Cr, by increasing the number of stores to 4000, from the present 1300. The company is first retailer in India who is looking at creating brands not just for its own stores, but is also planning to retail them outside of its stores.

This company’s biggest USP is Food Park  known as “India Food Park” spread across 110 acres, located at Tumkur, Karnataka (100 KM from Bangalore on the NH4, connecting Channai & Mumbai) became operational in September 2014. Tumkur, also known for its availability of abundant natural resources and close proximity to major transportation modes, has more than 100 rice mills and is known for its production of Ragi, Sunflower, Coconut, Gherkins, Groundnut, Maize, Jowar, Spices, Sugarcane and Milk.

It is a joint venture between India’s Ministry of Food Processing Industry and FCEL with an investment of more than 1000 Crores. Food Products produced at the facility will be sold in the market through Future Group’s retail formats, including Big Bazaar, Food Bazaar, Foodhall, KBs Fair Price, Big Apple, Easyday and Aadhaar.

This backward integration will not only help the company to source locally available products at cheaper rates, but also help the company to get higher margins on its sales as compared to its rivals, which are outsourcing their products from different vendors at lower margins.

Unlike other retailers, who have created private brands only for commodity based products such as Rice, Flour and Sugar, FCEL has been creating well accepted brands such as Tasty Treats range of ready to eat snacks, Biscuits & Cookies, Sauces, Ketchups to Sach personal care products and sells everything branded in between such as fruit juices (Sunkist Brand from Growers Inc USA), Clean Mate & Care Mate for Person Hygiene and House Cleaning Solutions. The company is planning to launch 25 types of branded Enriched Flours, Range of Personal Care Brand “Think Skin”, besides range of Bakery & Dairy products under Nilgiris. The company has set up an Oats factory in Sri Lanka and would be soon launching its own brand of Oats. All these and other FMCG products will be sold directly to the customers through 188 Big Bazaar stores, 19 Food Bazaar stores, 11 Foodhalls and 125 KBs Fairprice shops in addition to 150 Nilgiris stores, 188 Easyday hypermarkets.

The Promoters holds 44%, while non promoters includes Godrej Agrovet, Azim Premji, Mittals of Bhartis (holds 9%, which will be increased upto 15% after convertible debentures, which can be converted into equity in future) Porinju Velayath through his PMS Equity Intelligence and various others HNIs.

 Valuations : At CMP of 16 the stock is trading at Price to Book Value of just 3 times (Industry average 6) and with FY 15 sales at 1500 Cr, Market Cap to Sales Ratio is just 2 (Industry average of 7) leaving immense scope for further appreciation in the next 5 years, where company plans to increase sale from 1500 to 10000 cr by 2020. Hence investors can buy this debt free company with clean balance sheet for long term multiple returns.

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