In an interview to CNBC-Tv18, Kishore Biyani, CEO, Future Group said, his company’s general insurance business has been doing fairly well and is cash positive.. By divesting stakes in various non-core verticals, he aims to bring down debt levels of the company
Our general insurance business has been doing fairly well. It is cash positive and among the peer group it has performed reasonably well
Future Group will continue to offload stake in its non-core businesses in order to raise around Rs 3,000 crore. The Group has announced a deal wherein it sold 50 percent stake in its insurance arms Future Generali India Insurance Company to construction major Larsen & Toubro for Rs 500 crore.
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In an interview to CNBC-TV18, Kishore Biyani, CEO, Future Group said, his company's general insurance business has been doing fairly well and is cash positive. By divesting stakes in various non-core verticals, he aims to bring down debt levels of the company which is over Rs 7,500 crore.
Below is the verbatim transcript of Kishore Biyani's interview on CNBC-TV18
Q: L&T is buying partial stake in Future Retail’s insurance JV. Could you take us through the modalities of this deal? What kind of holding Larsen and Toubro (L&T) will have? What kind of holding will Pantaloon have and what has the deal been valued at?
A: The deal size will be in excess of Rs 500 crore. L&T would hold around 50 percent in this entity, Future Group will hold around 24 percent and balance will be held by Generali.
Q: Will there be an option for L&T to acquire remaining 20 percent at a later point in time?
A: There would be. It depends on how foreign direct investment (FDI) comes about and that will determine how things will happen.
Q: How will be the purchase routed in terms of direct and indirect purchases, how is the deal going to be structured?
A: Future Retail will still retain around 11 percent and the promoters will retain around 12 percent. In total, 38-39 percent is what Future Retail will be divesting.
Q: Do you think Generali Insurance will plan to increase their stake in the non-life insurance JV once the FDI in insurance comes through?
A: You will have to ask this question to Generali Insurance.
Q: In terms of your own books, how much relief will this give you?
A: There are various activities that we have been doing including life business, non-life and other transactions that have already happened or are happening, so it is a process. There are various mergers and demergers happening. Our fashion business will be created and there are certain investments in our fashion business that will be divested. We have a plan of various divestments. We have done some and some are in the offing.
Q: By how much do you plan to bring down your debt?
A: Total divestment plans including whatever we have made for the next one year, besides, what we have done is in excess of Rs 3,000 crore including this non-life insurance.
Q: Will Rs 500 crore imply that the entire business has been valued at about Rs 1,000 crore?
A: I am not talking about the valuation, but the inflow and the debt reduction should happen in that perspective.
Q: L&T has paid Rs 500 crore, does that mean the entire business has been valued at Rs 1,000 crore?
A: I am talking about the debt reduction that will happen and not about the deal size. This is because it is a multiple of the amount that has been invested up to a particular period of time and that is how it is going to finally get valued. It depends on permissions, structures and a lot of other things that will happen.
Q: On an average, what would it be in terms of time sales or enterprise value that you have struck?
A: It depends on the conclusion of the deal at that period of time, so values will come accordingly.
Q: Earlier, when you sold small stake in this insurance JV to an investment company, the valuation struck over there was a bit higher. Did you bring down valuation expectations because of the market situation?
A: Our general insurance business has been doing fairly well and is cash positive. Among the peer group it has performed reasonably well. Valuation is a function of how well your company is doing.
Q: Any details that you could share in terms of what kind of assets under management (AUM) L&T may get? What kind of premiums have you been getting on this non-life business?
A: The non-life business this March should have a premium of Rs 1,100 crore plus.
Future Retail stock price
On December 19, 2014, Future Retail closed at Rs 86.20, up Rs 0.55, or 0.64 percent. The 52-week high of the share was Rs 147.85 and the 52-week low was Rs 66.30.
The company's trailing 12-month (TTM) EPS was at Rs 2.05 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 42.05. The latest book value of the company is Rs 117.46 per share. At current value, the price-to-book value of the company is 0.73.
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