Brickwork reaffirms BWR A+ rating to FCHL`s NCD issue

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Brickwork reaffirms BWR A+ rating to FCHL`s NCD issue

Brickwork Ratings reaffirms “BWR A+” for Future Capital Holdings Limited’s Non-convertible Debenture (NCD) issue of Rs 300 crores, Non-Convertible Debenture Issue of Rs 250 Crores and unsecured subordinated Debt Issue of Rs 200 Cr.

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Brickwork Ratings (BWR) has reaffirmed the rating of BWR A+ (BWR A plus) with a stable outlook for the Non-convertible debenture issues of Rs 300 crores and Rs 250 crores and Unsecured Subordinated Debt issue of Rs 200 crores of Future Capital Holdings Limited (FCHL).

The rating "BWR A+" stands for an instrument that is are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

The rating, inter alia, factors improved asset quality, lower NPA levels, growth in NII and experienced management. However, the rating is constrained by volatile interest rate scenario, increasing exposure to real estate and heavy competition from other NBFCs and banks.

BWR has essentially relied upon the audited financial results of FCHL, projected financials, publicly available information and information and clarification provided by the company management.

FCH was incorporated in October 2005 as a private limited company called KB Infin Private Limited. The company was converted to a public limited company with effect from August 2006 and the name of the Company was changed to Future Capital Holdings Limited with effect from December 2006.

As of September 2011, Promoter group holds 61.04% stake in FCHL, (53.67% is held by Pantaloons Retail (India) Ltd . and the balance 7.37% is held by Mr. Kishore Biyani). However, as per our discussions with company and media reports, Pantaloon is planning to reduce its stake in the near future.

On a consolidated basis, FCHL's Profit before tax increased from Rs 60.15crores in FY10 to Rs 83.86crores in FY11. However Profit after tax reduced from Rs 59.25 crores to Rs 49.12 crores during the same period. This was due to a one-time tax provisioning on account of the merger with its subsidiary.

For H1FY12, Interest income increased to Rs 239.67 crores fromRs 112.07croresin H1-FY11. Net interest expense was Rs 115.41 crores as compared toRs 46.50crores. PAT increased from Rs 21.36 crores toRs 50.23crores, due to increased net interest income. For H1FY12, Networth stood at Rs 798.39 crores. The debt levels increased from Rs 1805 crores toRs 3342.98 crores, thereby leading to an increased adjusted gearing of 4.23.

FCHL intends to increase its composition of retail portfolio from the current 30% of total loans to around 50 % in the near future. The company has recently added new business segments like gold loans, auto loans. However, the exposure to real estate is still large. FCHL's ability to remain adequately capitalized, scale up its operations in rising interest rate environment and extensive competition while maintaining the quality of the assets and earnings profile are key rating sensitivities.

Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.

The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment