Future Group will become debt free in less than 4-5 years and has completed the reorganisation of businesses and is working towards strengthening the balance sheet to grow faster. The group is looking to return investors 20 percent return on capital every year, says Kishore Biyani, CEO of Future Group.
Speaking to CNBC-TV18, Biyani said that he expects an 80 percent growth in Future Consumers which has built multiple products and brands having its own distribution system that is coming on stream this year. The company has launched new brands and started many factories which are operating at full capacity. Future Consumer to see revenue crossing to Rs 20,000 crore by 2020-2021.
Future Retail is likely to have sales of Rs 20,000 crore in next financial year and will be growing at 25-30 percent in the next 2-3 years, he said.
Below is the verbatim transcript of Kishore Biyani’s interview to Varinder Bansal on CNBC-TV18.
Q: Are you looking at restructuring your businesses?
A: I think the re-organisation of our businesses has happened. We are now working towards strengthening our balance sheets. We are looking at how we can be offering to our investors, which is including us, a return on capital in excess of 20 percent year after year, how can we work on cash flow positive businesses. I think a lot of things have happened over a period of time, and I think the new balance sheets which we are drawing out, seems to be moving in that direction where in we will be able to make a very strong balance sheet on which we can grow further.
Q: Can Future Group become a debt free group in next four to five years?
A: I can see that happening maybe faster also.
Q: Coming to individual companies, I have heard several interviews of yours and you have talked about the growth rate in some of the companies, and I was astonished to hear 60-70 percent growth you are expecting from Future Consumer Enterprise.
A: I have talked about 80 percent growth in Future Consumer. I think that is the work which has happened in that company over a period of last many years and for which we have to build products, so, there is a lot of R&D which goes into building of a product, and we are multi-product company and a multi-brand company and we have our own distribution. So, there are various factories which we have put up. All things which are in development phases are going to come alive this year majorly and probably next year also. So, the growth will be quite huge in this company because there are a lot of new brands, a lot of new products, a lot of new factories which have started and they will be operating at the full year level this year.
Q: The kind of sales you do in Future Consumer, in the next five years at the growth rate of 80 percent what you are talking about, can the sales go to Rs 20,000 crore for this company, Future Consumer?
A: I think we feel good and confident that we should be crossing Rs 20,000 crore maybe by 2020 or maybe by 2021.
Q: With the margins of nearly 8-9 percent?
A: I think margins will depend on the scale and efficiency which we have built up. However, we believe all our products will be reaching significant size wherein the efficiencies will creep in and the values and the margins can be very interesting.
Q: I come to the second leg which is Future Retail which people in the market these days are very much focused on. Is 35-40 percent growth which you have done in the last 6-12 months, is that reasonable to assume and what are the triggers for Future Retail?
A: There is a big store and there is a small store. For us Big Bazaar is the big store and the small stores are Easyday stores. Easyday stores are going to expand a lot; I think we have a stated ambition of 3,500 stores, but we are experimenting on a model which is technology led. If we are able to be successful in that, we will think of a much larger scale on the smaller stores.
Our big stores are expanding 25-30 stores every year and that will continue to happen for the next four to five years. So, in that sense, it is quite a settled business. We have already running 235 Big Bazaar’s, independent 59 Fashion @ Big Bazaar (FBB). Our ambition is now to open 100 FBB’s as fast as possible. So, this year you will see a major expansion happening in FBB which is our fashion format. I think we have got a lot of things right in our fashion business and we are looking forward to a very significant jump in our fashion business this year also.
Q: If I can come to Future Retail, in that business, the integration of Bharti Retail, is it complete and if the integration happens next year, we will see the benefits of the integration coming in, in the numbers for the company?
A: I think small store businesses are getting stabilised to a great extent. Now management has been converged, a lot of things are behind us. There is a new acquisition or the merger happening of Heritage Fresh. We just got our competition commission approval on that. We are waiting for the court order. Once that happens, we would be running the Heritage Fresh stores also. That should add up another 160-170 stores in our portfolio basically in South, especially in Hyderabad and I think that addition should happen this year.
So, 1,000 stores is something which we are looking at ending March 2018 and Big Bazaar should end up at close to 270 stores, and we should look at around close to 100 FBB’s by the end of the coming fiscal year. So, I think it will be a significant move for us. We should add up close to 2-2.5 million square foot alone in Future Retail in the next one year.
Q: You did around Rs 14,000 crore of sales from Future Retail, people are talking about Rs 25,000 crore of sales in the next two to three years, is that possible?
A: Next year we are looking close to Rs 20,000 crore, maybe little less than Rs 20,000 crore; that is the next financial year which is FY18 and we should grow at 25-30 percent every year for the next two to three years.
Q: I think it is a free cash flow company now?
A: It will be a free cash flow company.
Q: Talking about the Future Lifestyle Fashion, I think this is as per me as an analyst, this is one of the most undervalued company at the moment. There are a lot of brands what you have and some strong brands in this franchise. A lot of talks about you could sell some of these brands in the coming future, what is your vision for Future Lifestyle Fashion?
A: As much as you are excited about this company, personally we are also very excited about this company because we started as a distant nobody in this company when we started this company. In our departmental store, we feel good that we are now nearly the number one in the departmental stores base. If you look at our Brand Factory, which is our discount stores based, there is nobody else in this market and we should be close to Rs 2,000 crore of business in the coming year.
I think we have come a long way, we run the largest plus size clothing stores in the country and we have multiple brands out here. We feel good about what has happened in this company, from where we were and where we are today. I think the industry is now respecting us in this company, what has happened in the last two years, we have changed the rules of the game. Our new Central stores, have redefined the market and we believe there is so much of investments which we have made in this company, we are in joint ventures, investing into various companies, they have lot of value to unlock.
Whenever there has been an opportunity, I think one value unlocking which we have announced, is the Lee Cooper transaction wherein we will be raising Rs 260 crore by divesting. We are waiting for the CCI approval which should come in the next few days. That should help us in deleveraging a little. Going forward, if there is an opportunity of looking at some creation or divestment of some of our investments, I think we will be looking at this opportunity because we believe this company is the first one to become debt free for us.
Q: The growth rate of 25-30 percent?
A: Maybe more in this company. I think the largest number of Central’s will be coming this year. We are opening 16 new Central’s by March 2017. That will be the largest ever we would have done and Central is on an average size of 1 lakh square feet. There are more than 20 Brand Factory opening in the coming year. So, I think this company we are also quite excited that what we have created is something which is paying us good dividends.
Q: Future Enterprise, it is the investment holding company but the major debt is of that company. Of course it has a lot of investments as well which as per the presentation, valued about more than Rs 10,000 crore. I want to talk about the insurance business, the general and the life insurance business, why are you still holding on to that business, Rs 2,500-3,000 crore is the value which is estimated and now the market is just talking about the insurance companies and all.
A: I think we have built a very good insurance business. Our general insurance business has been doing reasonably well, our life insurance business has started achieving its targets, numbers and budgets in a much better way. We are feeling good about the business. We believe that there is a lot of value which we have created in the businesses.
Q: Can we expect something happening in this year, even in FY18?
A: I am nobody to say that, but I think financial services is not our core business per se as such and whenever there will be an opportunity to be only looking at this business as an investor, we will look at it.