Future Capital, the ailing retail financing venture of Kishore Biyani, is making another go at leveraging its large customer base to sell retail finance products and services
Three years after he launched Future Capital Holdings (FCH), Kishore Biyani (founder of Big Baazar chain of retail stores), has found another leader to make a go of his ailing consumer financing business. He has now roped in V Vaidyanathan, currently CEO of ICICI Prudential Life, who was considered a rising star in the ICICI group to organise and grow the retail finance and insurance business that come under the Future brand. According to informed sources, Vaidyanathan will get a significant stake in Future Capital in return for his efforts to grow the business into a large retail finance company straddling every major customer-facing businesses.
Future Capital made a public issue January 2008, at the very peak of the biggest bull market India has seen. The stock hit a high of Rs1190 in February 2008 and collapsed to a low Rs93 in March 2009, a crash of 92%. It is currently trading at around Rs250. When it made the IPO, many smart investors had very high hopes about the company given that it was headed by Sameer Sain, a hotshot from Goldman Sachs. Mr Sain was a managing director with Goldman Sachs and head of the special investments group, co-head of wealth management for Europe, the Middle-East and Africa, and a member of the executive committee of Goldman Sachs Bank Zurich. However, it transpired that Sain was keener on the private equity part of the business and not the retail financing part for which Future Capital was mainly set up.
For Vaidyanthan it will be a different kind of assignment altogether after a decade with the ICICI group. He will take a significant stake in the company and grow it like an entrepreneur. The Future group is into the life and general insurance businesses in a tie up with Generali and some retail financial products and services. Vaidyanathan’s first job will be to make them cohesive so that there is tight supervision across these businesses. He will be the CEO overseeing the entire gamut of financial services - broking, wealth management, retail financing and insurance etc. - not only as a key manager but as a co-promoter as well. Future Capital has Rs800 crores of equity and little loans.
According to sources close to Future group, Vaidyanathan has excellent relationships with top business leaders and peers due to his long stint with the second largest bank in the country. He would like to leverage that, create value and share the upside. The new move is different but no less challenging than his current assignment as the head of ICICI Prudential Life where he has to deal with frequent and very public changes brought about by the regulator.
Future Capital will have a business leader in place, six months after Sain moved out of the CEO’s role. “Sain is very comfortable with private equity. His world was not about consumer and consumption. He had all the capital but could not build a business, especially since the macro environment turned turbulent just after the public issue” says an insider. On the other hand, Vaidyanathan comes from the retail banking side with a strong track record of understanding the Indian consumer. Biyani himself less comfortable about retail financing even though he has a great sense of what the retail consumer wants and how to deliver it. This is a gap that Vaidyanathan will fill.
As originally planned, FCH was supposed to be Kishore Biyani’s dream financial vehicle to extract value from footfalls into Pantaloon stores. Instead, in February, he decided to split its business into financial services retailing and investment advisory. Sameer Sain stepped down from his position as chief executive and managing director of the company.
FCH was supposed to have multiple revenue streams. Apart from selling insurance, consumer loans, credit cards and wealth management services, it is an adviser to various offshore and private equity funds. FCH manages four funds under its real-estate advisory services. FCH’s retail financial services started in June 2007 with an agreement with Pantaloon Retail India Ltd (PRIL), under which FCH has exclusive right to provide financial products and services at present and future malls, stores and retail outlets in India which are owned, controlled or managed by PRIL and its subsidiaries. FCH’s private equity arm, Indivision India Partners, manages a fund that focuses on providing growth capital to businesses which benefit from the growth in consumption in the Indian sub-continent.
Non-receipt of dividends and redemption proceeds remains the biggest worry for mutual fund investors
Non-receipt of dividends and redemption proceeds remains the biggest worry for mutual fund investors. For instance, if an individual has invested in four different schemes and has provided an incorrect address or pin code, the dividend warrant may not reach his/her correct address.
In a bid to improve the grievance redressal mechanism, market watchdog Securities and Exchange Board of India (SEBI) had mandated fund houses to display investor complaints on their respective websites as well as the website of the Association of Mutual Funds in India (AMFI). According to data put up so far on the AMFI website, the 37 fund houses have received 61,604 'non-receipt of dividend' complaints in the financial year 2009-10. There were 51,509 complaints pertaining to non-receipt of redemption proceeds. Issues relating to non-updation of PAN, bank details, nomination, etc attracted 42,515 complaints from investors.
Industry experts point out that it is negligence on the part of the investor while filling up forms as the primary reason behind such complaints. Often, the agent or distributor also fills in the forms on behalf of investors, who may end up furnishing erroneous details.
The mutual fund industry has approximately four crore investor accounts. Many of them are multiple accounts held by single investors. According to the aggregated data available with AMFI, the 37 fund houses received almost four lakh investor complaints during the financial year (FY) 2009-10. If we compare that to the number of folios, the four lakh complaints amount to just 1% of the folios.
"Only bigger dividend amounts are sent by registered post and smaller amounts are sent by ordinary post. If the small dividend warrants are lost, then investors have to obtain a 'reconciled statement' from banks because dividend warrants are usually issued through a cheque payable at par. The 'non-payment certificate' comes easily when a single cheque is issued in favour of a single person at a single bank. But, for 'at par payable' cheques, it takes an average of six months to get a 'reconciled statement'. So even if one complains to MFs, the transaction cannot be retraced easily," Debasish Mohanty, head-marketing, UTI AMC, told Moneylife.
"Recently, there have been cases where wrong people have claimed dividends on behalf of genuine investors. Therefore, to tighten that loophole, fund houses have applied further restrictions. For instance, if one requests change of address, we will ask the investor to provide proof of old address, new address, etc," added Mr Mohanty.
Industry experts say that the introduction of electronic clearing system (ECS) and core banking facility has helped in smoother distribution of dividends.
Redemption cheques are normally sent by registered post, where the amount involved is higher, unlike dividend cheques. Experts point out that investors do not provide details properly while filling up forms. Many application forms received by the registrar & transfer agents (RTAs) and fund houses are incomprehensible, which results in incorrect data entry. Most cases occur during the time of new fund offers (NFOs) wherein a distributor has to submit many forms.
BAJAJ AUTO (Q1) - Zooming ahead of competition
Results were within expectations though sales were on the higher side and profit was on the lower side. All segments did well - motorcycles up 72%, two-wheelers up 71%, three-wheelers up 58% and exports up 82%.
Margins went up slightly due to scale of operation (volumes were up almost 70%) and lower employee costs. Increase in production at Pantnagar led to lower tax rate. Other income was also higher because of the Duty Entitlement Pass Book scheme benefits from the higher scale of exports. The management believes export volume will be strong and will be primarily driven by the African markets (51%) followed by Sri Lanka, Egypt and Columbia. Bajaj\'s total production capacity is
4.26 million units per annum (pa), which it plans to increase to 4.98 million units pa, but it may still face supply constraints in the festive season as it is already operating at full capacity. In its analyst call, it reiterated its guidance to clock 4 million vehicle sales in FY11. It seemed confident about the volume success of recently-launched models Pulsar 135 and Discover 150. The company has said that it has hiked prices in the export markets (it has already hiked the same in domestic markets) in July 2010. Bajaj expects steel and aluminium prices to soften and expects to benefit in terms of raw
DR REDDY\'S LABS (Q1) - All eyes on the US
Adjusting for one-offs, both sales and profits were way below expectations. Revenue growth faltered due to lower-than-expected core generic revenue in the US and a fall in PSAI (Pharmaceutical Services and Active Ingredients). However, sales growth in India and Russia ROW branded finished dosage markets was strong. Betapharma (Germany) saw a further 6% reduction. Going forward, one needs to track traction in branded formulations and US businesses closely. Revenue generation from limited competition products (US) in 2HFY11E will be important. It now has five ParaIV/low competition products - namely Arixtra (GSK, Fondaparinux, preventing blood clots); Prilosec OTC
(AstraZeneca, omeprazole, controls stomach acid); Prograf (Astellas Pharma, tacrolimus, lowers immune system); Lotrel (Novartis, amlodipine and benazepril, relaxes blood vessels) and Clarinex
(Schering, desloratadine, antihistamine).
SESA GOA (Q1) - A lot hinges on shipments picking up
Results were mostly better than expectations; realisations at $92/tonne were above almost everybody\'s expectations. Volumes were sharply lower q-o-q but 14% higher y-o-y. Iron ore costs per tonne also rose sharply. It is possible that iron ore shipments will pick up in 2HFY11 due to favourable weather but China demand needs to be followed closely.
Another big factor in stock performance will be ramping up of volumes. Existing permissions allow Sesa shipments of 25 million tonnes (MT) per year - it remains confident of ramping up production to 50MT in 2-3 years. However, it is facing challenges in getting new permits especially from the ministry of environment and forests (a recent example: the forest permits in Karnataka), which may
delay volume expansions. Rail freights may also weigh on the stock performance - these have gone up by Rs900/tonne from mid-March (largely applicable to Orissa in Sesa\'s case where its production is 640k tonnes). Mining companies are lobbying with the Indian Railways to cut freight.
BANK OF BARODA - Way ahead of the street
The bank surprised the street on profit and NII numbers. Overseas advances and deposit growth came in strong too - but could be peaking out. Asset quality slipped a wee bit. The bank has contained slippages below its target of 1.25% for the past six quarters. Restructured assets were Rs53 billion (2.8% of loans), of which ~9% have turned NPAs (bit on the higher side). However, its coverage ratios are more than adequate. Staff costs were lower. CASA at 35.3% slipped a bit q-o-q but is still to get back to 3QFY10 levels of 37%. Fee income growth is an area where the bank has scope to grow.
ASIAN PAINTS (Q1) - Margin protection
Results were generally better than expected numbers. Recent price increases indicate it will continue to defend margins. Another 2% price hike likely in August so there is some stocking up at the dealer end and that too has driven high sales this quarter. The company has warned that it could face high raw material prices especially in titanium dioxide and acrylic acid.
UNITED SPIRITS (Q1) - Good show (excluding AP)
Results were in line with estimates. Whyte & Mackay posted an EBIDTA of £5.93 million versus £5.44 million in Q1FY10. Volumes were impacted because of Andhra Pradesh where there was a delay in renewal of licenses. Excluding AP, volumes were up 15% y-o-y. As expected, interest charges shot up.
CROMPTON GREAVES (Q1) - International operations pick up
International subsidiary revenues picked up 7% in euro terms against a 13%-14% decline in the past three quarters. Subsidiary order inflow growth was also strong. While orders for its standalone power business remained strong too, the flat revenues were due to delays in client off-take and sluggish exports. Consumer products and industrial segments showed strong growth. Margins were better due to cost-saving measures.
CG maintained its full-year revenue growth guidance of 15% at the standalone level and 5% at the subsidiary level (in local currency terms).
LUPIN (Q1) - A little disappointing
Lupin\'s numbers were not quite up to the mark, probably because expectations were high. Excluding US one-offs, it reported a 15% increase in sales. The key revenue drivers in the quarter were
domestic formulations (up 21%, 34% of sales) and the US business (up 25%, 32% of sales). Japan growth was sluggish. Its US branded business reported healthy growth.
ZEE ENTERTAINMENT (Q1) - Star threat still clear and present
Results were more or less on the lower end of the expectations spectrum. Losses in the sports channels (Zee Sports and Ten Sports) dragged down margins. Ad and subscription revenue growth was steady.
UNION BANK OF INDIA (Q1) - Ambitious targets
Profit growth was at 36%; loan growth at 30% and NII growth was at 68%. The results looked good except for higher slippages. The management has set up ambitious targets - 25% loan growth; 22% deposit growth, CASA at 35% from the current 33%; RoE of 25%; RoA of 1.25%, transaction through electronic mode to reach 50% and gross NPA levels below 2.1% with slippages at 1.85%.
ASHOK LEYLAND (Q1) - Strong quarter
Good volume growth led to a 157% increase in sales. EBITDA margin at 10% was the best in 8 years. Since the Pantnagar plant has begun operations, interest payments are now no longer being capitalised, hence interest payments were higher - however, it is expected to make up for this in terms of margins. AL upped its volume guidance for FY11 to 89,000 units. Engine volumes declined to 4,000 units from 5,400, due to a fall in supply of \'Leypower\' engines to the telecom sector.
GLENMARK PHARMA (Q1): Out-licensing saves the day
Base business was subdued. The generic formulation business reported only 6% revenue from the USA. The domestic formulations business was good at 19%. Out-licensing revenue growth was good. Going forward, Tarka\'s generic launch will show fully from Q2, more out-licensing deals and milestone payments expected.