FUTURE CONSUMER ENTERPRISES
LTD (FCEL) RS. 16 (FV RS. 6)
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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