Mumbai: Three months after Kishore Biyani began restructuring Future Group’s 22 companies into two key business groups—retail and financial services—the chairman of India’s largest shopping chain by market value wants to offload stakes in units not part of those core categories to raise money needed to fund expansion plans.
Fingers in many pies: A file photo of Kishore Biyani. His business model is unlike that of global modern retailers with its many formats and different operating structures, resulting in more vehicles to raise capital. Ashesh Shah / Mint
Biyani wants to cap his stake in the non-retail and non-financial services business at 26% and keep 40-45% in the operating companies.
“We have two kinds of businesses. One is where we are running and operating (companies), and others we look at as mentor capitalists or financial investors,” Biyani said in an interview on Tuesday. “Wherever we are operating our business, we have set a benchmark to hold between 40-45% and we are okay with 25-26% in companies where we act as financial investors or mentor capitalists.”
Future Group’s promoters, Biyani and his family, own 44.73% in flagship Pantaloon Retail (India) Ltd, the retail shopping chain, and 38.95% in Future Capital Holdings Ltd (FCH).
“I want to run and operate the retail businesses,” Biyani said, making it clear that this will remain his focus. Pantaloon Retail houses retail chains and allied businesses such as logistics, distribution and training institutes.
Biyani said he’s open to stepping back from financial services, which he’s currently running. “Financial services, we are currently running and operating, unless I decide I want to be a mentor,” he said.
There are more than 10 businesses that support the retail ventures where Biyani acts as a financial investor, a role he has confined himself to in the real estate business as well.
The strategy behind this move is to raise more money and invest it across more areas, said Biyani, who runs the group along with his brothers and cousins.
“We have created many verticals in the consumption space, such as fast moving consumer goods, rural distribution, education, fashion, hospitality,” Biyani said. “The idea is to acquire stakes in one company and through that acquire a lot of other companies and consolidate.”
Biyani, who diversified into retail from the garments business two decades ago, says that both his current main businesses require a lot of cash. Some of that will be required to fund the expansion to 12 million sq. ft of retail space, from nine million sq. ft now.
Pantaloon Retail reported a net profit of Rs140.58 crore on sales of Rs6,341.70 in the year ended June.
“By June, we will have 20 more stores under the Big Bazaar format where we now have 123 stores,” he said. “We will add more of the large-format stores as well like Foodrite.”
Biyani, who has launched a toothpaste under the brand name Sach, wants more of his own labels to dominate his stores. In fashion, such so-called private labels contribute 75% of sales, he pointed out.
FCH, which hosts the financial services firms, is also hungry for cash, said Biyani.
“Wherever money is required, we will get in money and every balance sheet will have to look at its growth plan and raise money,” he said. The idea of segregating businesses and consolidating them under two divisions is to provide clarity and open up avenues for raising money.
“We have a strong balance sheet in financial services,” he said. FCH reported a net profit of Rs9.31 crore on turnover of Rs132 crore in the fiscal year ended March 2009.
The Future Group “introspected a lot and reinvented ourselves” in 2008 and 2009, Biyani said. “We realized that the group needs to achieve maximum from minimum means and get disproportionate growth with minimum means,” he said, explaining the rationale behind the restructuring and the stake sales.
Biyani’s model is unlike that of global modern retailers with its many formats and different operating structures, resulting in more vehicles to raise capital, said Arvind Singhal, chairman of Technopak Advisors Pvt. Ltd, a retail consultancy. For instance, the promoters can dilute their stakes in non-core businesses such as FCH and invest this in the core business or dilute some of the family holdings, he said.
“In financial services, we have insurance, forex, distribution of financial products and a non-banking financial company,” Biyani said. “It’s all about consolidating and putting it in one and we are already doing it under Future Capital. The idea is to convert this into a powerful idea.”
However, Future Generali, a joint venture with the Generali Group of Italy that offers both life and general insurance, will now be part of the retail business, he said.
FCH offers personal, consumption and home equity loans, apart from credit cards under the Future Card brand. It has nine companies, ranging from wealth management to hotels, with Biyani’s stake ranging between 50.1% and 100%.
Biyani will need to move fast to raise capital and expand, Technopak’s Singhal said.
“The playing field has changed and is changing,” said Singhal. “Successful Indian conglomerates such as the Tatas, Birlas and Reliance already have a sizeable retail presence, and global biggies like Tesco and Wal-Mart are also here.”
“From being bullish, cowboyish, Biyani is now maturing,” said Singhal, who feels that the group should refocus objectively and not get carried away. “Biyani still has the lead, but this will get narrowed in the next three-four years. The competition 10 years ago was different, it’s different today and will be different 10 years hence.”
Restructuring is on track, Biyani said. The board has approved the demerger of the financial services business and the merger of home solutions with consumer retail.
The recast has also created a fully-owned holding company for the family, which may be called Future Management Resources or Future Group Holdings, Biyani said. There is an option to dilute in the family holding company and use the money from this to increase stakes in operating companies if they goes below the benchmark level, he said.