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When the former head of ICICI Prudential Life Insurance was appointed to head Future Capital the stock shot up to over Rs300. Now, it is back to the old Rs180 levels
On 1 August 2010, when the Kishore Biyani-promoted Future Group announced that V Vaidyanathan was going to be the new vice-chairman and managing director of its financial services arm, Future Capital Holdings, the Future Capital stock was rallying. Three days later, the stock peaked at Rs302. One would have believed that there was a lot riding on Vaidyanathan's appointment and that it was a good buying opportunity.
In fact, the Future Capital share gained 13% in the five sessions preceding the announcement of the new MD and climbed a further 18% over the next three days, adding up to a 35% increase in just eight trading sessions. The average trading volumes shot up to 9,76,000 shares in this period, compared to 2,65,000 in the first half of the year.
It was a big decision for the company and certainly an important decision for Mr Vaidyanathan himself, who quit ICICI Prudential Life Insurance as its MD and CEO after 20 years with the organisation, to take up the new assignment.
There was speculation about the reasons for Mr Vaidyanathan's shift from ICICI to the relatively smaller Future Capital. The package for the new boss also raised eyebrows. According to reports, he was offered 20 lakh warrants worth Rs47.40 crores by Future Capital as a sign-on bonus. It was a price that the company agreed to pay for the task in hand. The company has insurance, retail financial services and wholesale credit businesses that have not done too well and Mr Vaidyanathan was engaged with the express purpose of rejuvenating the unit and turning it into a full-fledged financial services company.
Future Capital went public in February 2008, raising Rs 490 crore through a sale of shares at Rs765 a piece. In May 2010, the share hit a bottom of Rs146, a sad reflection of the change in market perception about the company in 28 months. It was also a reflection of the goings-on within the company that culminated in the resignation of both the managing director and the chief executive officer.
Shortly after taking charge at Future Capital, Mr Vaidyanathan expressed confidence about turning things around for the company. "I am feeling very confident and bullish about it. I feel that it can open new horizons for myself and for the company that I am taking over. I feel there is a significant opportunity for growth as well," he said in an interview to a leading business news channel.
Mr Vaidyanathan has made more such statements about the opportunities he sees for the Future Group's core non-banking financial arm. And he is reported to have hired key managers to make it happen. However, if anyone is expecting him to work a miracle, it hasn't happened yet.
Since the spurt in the stock price which was accompanied by a sharp increase in trading volumes around the time of his appointment, the Future Capital share price has slipped back nearly 40% in five months. Trading volumes too have practically dried up to an average 34,600 shares.
Mr Vaidyanathan has been working out the areas he must focus on. "It could be building a core high quality lending book, but that is one side of the story. There is a play in the insurance sector as well, in the life insurance place. There is a play in the general insurance space; there is equity that has been taken in a wealth management company to the extent of about 50% in Centrum Capital. So, our sense is that across these four-five areas, there are significant opportunities." A couple of days ago, it was reported that Future Capital plans to also enter the mortgage business.
It's not an easy task at all. Overall, non-banking financial companies (NBFCs) are at a disadvantage versus banks that have easy access to cheaper capital. Besides, the financial system is going through a particularly difficult phase and this is making it tougher for NBFCs. Whether Future Capital will overcome the headwinds and turn around its performance, only time will tell. One thing, however, is clear: There are no assured gains from buying a stock simply because there's a new general at the helm.