Working on integration of food biz; see 25% growth there: Kishore Biyani

Future Group stocks have had a wonderful run in the recent past; most of them like retail, consumer and lifestyle have more than doubled from the start of this year.

In an interview with CNBC-TV18, Kishore Biyani, CEO, Future Group spoke about demonetisation impact, integration of food business, retail growth, listing of Home Town business etc.

Below is the verbatim transcript of the interview.

Anuj: You go to D-Mart, or you go to Future, you always see that all the stores are always full, there is so much purchasing power. Is that translating into numbers as well, because there were some concerns post demonetisation but on the ground are you getting a sense that things are better than ever?

A: I think after demonetisation, if you look at major markets, I think it was positive for modern retail besides the southern market. I think the north market, NCR markets did far better than what they used to do. In fact, that lifted our business up.

We believe there has been consumption buoyancy which is happening in the country because every generation normally consumes more than the previous generation, there are more stock keeping units (SKUs) to shop for, and there is more consumption happening on value-added products. So, consumption definitely is going to keep on increasing as the economy grows.

Latha: First, this recent announcement on April 20 of segregating the home retail business. What is the plan after this demerging into Praxis Home Retail, will you list it separately?

A: The whole idea was to make Future Retail as a pure retail company and having large store retail and having the small store retail. So, large store retail is represented by Big Bazaar and small store retail is represented by Easyday. So, our idea was to concentrate on these two businesses, which is food and fashion, and general merchandise.

Home retail is a speciality retail business, and we believe it should chart its own course and its own future. So, we thought of demerging this business because that business has been a reasonably good business. It has achieved certain size and scale and I believe it can grow on its own. We don’t sell this category in our retail stores, which is Big Bazaar because they are high value products; it is to deal with furniture and furnishings.

Latha: Home improvement stocks, whether it is paints or whether it is ceramics, have all being doing well. What has been the growth of your own home improvement segment and when should we expect separate listing or strategic investors? Should that be in calendar FY17?

A: Yes, it should happen this year because whatever the process we have to go through, it will take probably four to six months to get this company listed on its own. So, we already had an independent management working on HomeTown. It was very independent as a business and a division which was running with us.

They will be moving into a new office and so we are kind of making them move away from us and run this business independently and grow this business independently because the potential of this business is also huge and we seem to be one of the significant large players in this space also.

Sonia: I want to talk a little bit more about food and fashion which is the verticals that you are focusing on because if you step into a Big Bazaar, or if you look at FBB as well which is your fashion chain, you notice that a lot of the products are now sort of adapting to local taste, increased loyalty programs, etc. so you are making it more consumer friendly. I wanted to know what the growth trajectory could be for these two businesses, Big Bazaar and FBB, are we looking at about 10-15 percent compounded growth over the next couple of years?

A: Our origin of the group starts from fashion and we understand this space reasonably well. Just to give you a perspective, we will be selling close to 20 crore garments this year as a group, and we believe the growth in terms of numbers of units will be more than 30-40 percent every year. So, we expect significant growth.

We have created a whole backend system to manage this kind of volumes and growth. I think India will need a lot of clothing options and we believe, we have built over a period of time the kind of scale and efficiency and what prices we can offer will be quite important for us to grow this business. We think we have reached that scale and we are seeing significant growth in this category.

Second, being food, I think food is something which we have worked upon in terms of managing the entire value chain by building our own brands by looking at a lot of new categories which are coming about, by making our supply chain much more efficient, by creating distribution centres, by having temperature controlled logistics. So, we have gone a long way in understanding each and every category.

We believe our understanding of the categories including dairy, frozen has significantly improved or rather we have perfected that. We believe 20-25 percent growth is possible in this category for us, as we go forward. Once we start our small store expansion, I believe this growth can be far greater than what I am talking about.

Anuj: A question related to Future Consumer, when are you selling your non-life insurance business?

A: I am not talking about any financial part of the business and right now we are not in any discussions or any sell out of any of the insurance verticals.

Anuj: I understand broadly you have taken a decision to sell this, so, wanted your thoughts on that.

A: We have said this is held as an investment, that is not our core business and whenever there is an option available we can look at it.

Latha: I wanted to speak about the small retail stores that you were talking about. What is the planned trajectory and besides on a related note, D-Mart is doing margins of probably 8.5-9 percent, is there a plan to catch up in terms of the gap in margins?

A: We run a very different model than what D-Mart runs. D-Mart runs a very efficient food retail model and wherein they work on limited SKUs and they do that very efficiently. For us, non-food is 65 percent of our business. So, it is a very different model.

Secondly, our organisation, the way we have designed it, is very different than what D-Mart model is. For us, there is a company which runs which does all our furniture fixtures and all our equipment’s and we lease the store and we run the stores as Future Retail. So, there is a depreciation component which is paid as lease rental in a sense.

So, if you look at our gross margin model, it is very different model than what D-Mart is. So, I think our comparison on the margin front is very different but on the balance sheet front, on the return on capital employed and other things, we think we should get better and better with every passing day.

Sonia: You did give us two numbers which look quite good in terms of growth. So, you said 20-25 percent growth in the food business is what you are looking at and about a 30-40 percent increase in the number of units you will sell in the fashion business. What does all of this do to same-store-sales growth, are we looking at 12-15 percent same-store-sales growth as well?

A: I think these are the numbers which we are currently being ambitious about having on the same-store-sales.

Sonia: In terms of the other aspect that you did speak about was how you are driving working capital efficiencies by perhaps reducing inventory levels, etc. How is that part of the business playing out and what kind of free cash flow generation are you looking at, how much of the inventory days reduced to, just trying to understand that side of the business.

A: We are working on a lot of technologies now. Our technology has come in a big role to play in our warehousing management. Our order processing, our forecasting, our demand planning, so, you are using science to forecast and predict a lot of things with a lot of data available with us we believe the efficiency of having at least a reduction of 20-30 days is possible over a period of time.

Anuj: One very small part of your portfolio Galaxy Entertainment, what are the plans here, any delisting plans there?

A: We are one of the shareholders of the Galaxy. We are trying to rejuvenate the company by building a commissary business. Recently we acquired Birdy’s commissary unit in Mumbai and our plans are to do commissaries in Delhi, Hyderabad, and other places because there is a huge requirement of that from where a lot of fast food chains and even Future Group requires a lot of categories and products. So, that is a business they will be entering independently but we are a very small shareholder in this company along with other people.

Latha: What is the proportion of your group sales that comes from your own brands and will you be growing that, what is the plan for that own brand segment?

A: I think in fashion FBB if you look at it, it will be more than 95 percent of the products which we sell is our own brands. On food we have touched 35 percent already and our plan is to go up to 70 percent on that.