There is a possibility of value unlocking: Analysts

With the scrip of Kishore Biyani-promoted Future Retail Ltd going ex-scheme of the company’s demerger arrangement from Friday, the stock witnessed a correction of almost 33 per cent on the day. On the BSE, the stock closed at Rs 98.60, down 32.81 per cent on the NSE, the stock tumbled by 33.67 per cent to end the day at Rs 97.50. The total traded quantity of the stock on BSE was 1.08 crore against a two-week moving average of 5.84 lakh.

The company has fixed a record date as June 24, for determining share entitlement to its shareholders. As a part of the restructuring, the company demerged its fashion business into a separate entity called Future Lifestyle Fashions. The shareholders will receive one equity share of Rs 2 each of Future Lifestyle Fashions for every three equity shares of Rs 2 each held in the company.

According to analysts, though the share entitlement announcement post the demerger was the trigger, the company’s uncomfortable debt position eating away at its operational profits would continue to remain an overhang on the stock.

Sonam Udasi, Head of Research, IDBI Capital Markets, said: “Markets generally do not like companies with extremely leveraged balance sheets. Lately there have been concerns that while the company management has been focusing on reducing debt, the overall gross debt has remained constant.”

“Following the demerger there could be a possibility of value unlocking in the two listed entities or a strategic investor coming in any of the two entities, that could drive sentiment on both stocks,” added Udasi.

The company sold-off a majority stake in its flagship Pantaloons Retail to Aditya Birla Nuvo for Rs 1,600 crore in April last year and restructured its business under Future Retail. Thereafter, the company sold a 53.6 per cent stake sale in Future Capital Holdings to private equity firm Warbug Pincus for Rs 560 crore in June last year. The company further announced sale of a 22.5 per cent stake in Future Generali Life Insurance to investment company IITL for about Rs 300 crore and a 50 per cent stake in Future Generali General Insurance for about Rs 600 crore in March this year.

Going ahead the company has plans to generate an additional Rs 3,500 crore in the next 18 months by selling stake in various investments. Sangita Tripathi, Senior Analyst, Sharekhan, said that stock fall was not owing to a change in the company’s fundamentals.

“We continue to maintain a positive view on the stock as we believe once the money from sale of Pantaloon comes into play by the end of the year, the company should be able to inch towards debt reduction by first half of next year. A lot of damage the company has suffered has already been priced in.”

(This article was published on June 21, 2013)
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