FabFurnish will ensure entrance into more cities for the company, says Kishore Biyani, CEO of Future Group.
Future Retail has approved of acquisition of online home furnishings and décor business, FabFurnish, from Bluerock eServices for Rs 4.86 per share.
Kishore Biyani, CEO of the Future Group, in an interview with CNBC-TV18, said that FabFurnish is a high margin and profitable business, currently operating at 40-41 percent margins.
The aim is to enter into more cities via the home furnishing brand, Biyani said adding that it plans to operate in 100 cities eventually.
Biyani expects earnings before interest, tax, depreciation and amortization (EBITDA) of Rs 40-50 crore from this acquisition.
Future Group is looking at more acquisition opportunities in the specialty retail space, Biyani added.
Below is the verbatim transcript of Kishore Biyani’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: If you can just start off by telling us what the rationale is behind this acquisition and what FabFurnish.com will bring on board for the company?
A: We are a significant player in the home furnishing, home furniture, and home fashion segment. I think we are probably one of the larger ones. We believe there is a value in what business we have created over the years and we operate in 20 cities.
We believe we can be the first company to get into the Rs 1,000 crore space this year in this business and this acquisition we want to create value out of this business and merge this business with FabFurnish and work on entering into more cities through our digital space.
This is a high margin business and a profitable business and having achieved supply chain efficiency, sourcing capabilities, we are a significantly large player.
Sonia: What would the margins and the profits be of a business like this?
A: We are expecting EBITDA of close to Rs 40-50 crore this year and we operate on margins of close to 40-41 percent on this business.
Latha: How much and how are you paying for it?
A: It is internal accruals. It is not a very big significant amount but it brings in significant capabilities of building a digital business for us.
Latha: If you are getting an EBITDA of Rs 40-50 crore, what would you be paying for it?
A: That is a business of what we have created out of Home Town. That gets merged with this business and we create a single entity to work on the home side of business wherein there are significantly large players entering this space.
Latha: If you can give us some numbers on what will FabFurnish’s EBITDA be and how much you are paying approximately, how many times its EBITDA or how many times it sales?
A: I don’t think so that business was making profits. We are acquiring the frontend of the business, the retail part of the business and not the backend part of the business where the website is, where the brand is, where the relation with the customer is.
Latha: You think after the acquisition your furnishing business will give Rs 40-50 crore EBITDA?
A: We are expecting that EBITDA irrespective of that this year.
Sonia: You said that FabFurnish is not a profitable business currently but we do have some details of what the turnover of the business has been in the last three years. In 2015, the turnover was about Rs 79 crore. Can you give us details of what the turnover could grow to over the next couple of years?
A: I think lately they were operating only in very few cities. With us, we can get into 20 cities where we already operate and we have a supply chain and we can move into maybe 100 cities where we have a distribution infrastructure base as a group. So, we can add up. It is all about number of cities you can add up and build a supply chain efficiency because we have the products.
So, this will help us to reach as many as cities as possible. Operating in four to five cities they used to this kind of business, imagine if you operate in 100 cities what kind of business one can do.
Latha: Are you looking for more such targets?
A: I believe that ecommerce business should be profitable and how can we make profitability come in as early as possible so we are looking at other opportunities also and probably in some specialty retail space wherein we believe there will be opportunity to converge our businesses and make them profitable maybe from the first three months.
Sonia: Just to come back to the point you were making about internal accruals. How much cash does the Future Group have on its books right now and what is the total amount that you have paid for FabFurnish?
A: I am not getting into the details of the transaction at the moment. However, we have a running enterprise and it will be close to USD 3 billion business for us this year in Future Retail in terms of the retail business.
(Interview transcribed by Priyanka Deshpande)The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .
First Published on Apr 6, 2016 09:27 am