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29 Apr 2018

STOCK MARKET--Is Future Consumer going to become a multibagger by 2020-2022?



 Future Consumer
Future Consumer is the home grown FMCG division of Kishor Biyani’s Future Group. It is focussed on FMCG 2.0, a concept to create and deliver innovative brands for the new generation. These brands are being sold across Future Group’s retail chains like Big Bazaar, Nilgiris, EasyDay and other retail chains like Nature’s Basket, Walmart, Star Bazaar. Below is the list of some of the growing brands which constitute Future Consumer:

Good Management and Products
Kishor Biyani needs no introduction in the world of retail. The board of directors and the management comprises of able and experienced executives who can help Future consumer grow its brands. Having a huge retail network of 71000 stores is a core competitive advantage for the company. They have been aggressively spending on advertising and in store promotion. I also came across their brand (Karmiq) for the first time when the store personnel recommended it in Big Bazaar. The products generally have a very attractive and distinct packaging and are of good quality (from Karmiq experience).
Growing Industry
The branded FMCG market in India in 2015 was 65 billion $ (34% of the overall FMCG market). As per the joint study by BCG and CII, it is expected to grow to220-240 billion $ mark by 2025. The reason for this shift is the increase in the number of people joining the workforce in cities and increasing disposable income. Evidently, there is enough growth potential for Future Consumer on the back of growing demand and huge retail network.
Let’s talk financials

The stock has already given 10x returns in the last 5 years. March 2017 revenues stand at 2115 crores INR (increased at 30%+ CAGR over the last 3 years). Company reported a loss of 43 crores INR which is down from a loss of 87 crores a year earlier. The company has significantly reduced its Debt to Equity ratio to 0.56 from 0.88 in 2015. The Price to Book ratio is decent at 5.16. Hence, overall the financials don’t look very attractive given the company is still a loss making entity. Then, why should one buy this stock ? Let’s see.
Future Plans
As per Kishore Biyani, the company targets to grow its revenues 80% this year. Though this is a very aggressive target, but these numbers are like music to an investor’s ears. With reducing debt, the company is expected to turn profitable by the end of this financial year. As per Morgan Stanley’s research report, the revenues are expected to grow 3.2x by March 2020 which would be 6200 crores INR. With stabilized expenditure on advertising and economies of scale, the company can realize a substantial PAT in coming years. Hence, the stock can still continue to give multibagger returns to the investors. Many top brokerages like Edelweiss, Morgan Stanley, Motilal Oswalhave given a buying rating on the stock.
Negatives
With the company looking all set for growth, it will have to tackle some problems. The brands are considerably new to the Indian Market and the company will need to aggressively advertiseto get a mind share of the customers. The margins have been very low given the need of rapid growth. But, they need to be increased in coming years to increase profitability. Finally, the company has reduced its debt but needs to control it to ensure better margins in coming years. All said and done, I believe the financials of the company don’t look very attractive at the moment. But, given the rapid growth potential, I will have it in my portfolio expecting improved margins and EPSin coming years.

2 comments:

  1. Nice article sir. I read all your analysis

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  2. Your post is very useful for us.Thanks for sharing this post.

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