Recommendation From Packaged Foods Sectors

HERE IS WHY
Leveraging retail store network of the Future Group
Turnaround in financials
JV and associates seeing revival in revenues.

Future Consumer Limited (FCL) is the FMCG arm of the Future Group. It is engaged in branding, marketing, sourcing, manufacturing and distribution of fast moving consumer goods, food and processed food products. It also has agri-sourcing operations in India. The company has also commenced its operations for marketing and distribution of oats and oats-based cereal products in India through its subsidiary company in Sri Lanka. FCL has been largely focusing its energies on the food space. Food and beverages comprises 94 per cent of FCL’s brand business (which contributes to about 90 per cent to the total revenues), whereas home and personal care contributes only 6 per cent to the brand's business.

The traditional FMCG companies’ distribution cost ranges from 18 to 25 per cent, but for FCL, the distribution cost is much lower since the group has its own distribution network in modern retail, which is also the fastest growing distribution network. The company reported 2.8 times (YoY) expansion in its distribution network with an overall footprint of roughly 80,000.

FCL has entered into several tie-ups to boost its product portfolio and to expand its distribution reach. This route of entering into international tie-ups and JVs allows for faster and innovative product launches (including new categories) as well as it lets the company focus on marketing and distribution. For instance, the company has a joint venture with the Hain group, which is one of the leading suppliers to whole foods in the US and has expertise in organic foods. FCL has launched the Terra brand of chips with them and also plans to come out with an organic food range for babies.

FCL has also recently approved raising of funds by way of issuance of debt securities or equity shares through private placement and preferential issue or QIP amounting upto Rs 1,000 crore.

On the financial front, the net sales of the company increased 48.54 per cent to Rs 644.84 crore in the third quarter of FY18 against Rs 434.13 crore in the same quarter of the previous year. The company’s PBDT increased 111.72 per cent to Rs 13.55 crore in the third quarter of FY18 on a yearly basis. The company’s standalone net profit increased 430.23 per cent in the December quarter to Rs 6.84 crore as against Rs 1.86 crore in the same period last year.

On an annual basis, the company’s net sales increased 22.41 per cent to Rs 1644.9 crore in FY17 on a year-on-year basis. The company reported PBDT of Rs 25.2 crore in FY17 against a negative PBDT of Rs 30.9 crore in the previous fiscal.The standalone net profit of the company also increased to Rs 7.78 crore in FY17, as against a net loss of Rs 63.55 crore in the previous fiscal.

The company has seen a turnaround in financials. Also, with a strong portfolio of food and FMCG brands, extended distribution reach and successful new brand launches, we expect the company’s growth momentum to continue over the next few years. We recommend our reader-investors to BUY the scrip.