Biyani sees a Rs 8,500-cr NBFC giant

Future Capital Holdings, the financial services arm of Kishore Biyani's Future Group, started with a big-bang promise of becoming a financial powerhouse, but had lost the plot along the way.

But the retail king is not one to give up easily. He has brought in V Vaidyanathan, executive head of ICICI Prudential, who will steer FCH's fortunes as its vice-chairman and managing director from August 10. The current VC, Sameer Sain, resigned from his post on Sunday.

So, where does Biyani see FCH under Vaidyanathan in the next two to three years?

"Together, we have the potential to become one of the foremost non-banking financial companies. Our immediate aim will be to consolidate the different pieces. For example, insurance (joint venture with the Generali group), brokerage, wealth management and PMS and foreign exchange (alliance with Centrum) are today all separate pieces. We need a holistic strategy to grow all together," Biyani says.

The founder-CEO of Future Group would like to see his financial business grow as big as his retail operations. That, by today's calculation, means he is aiming at becoming a Rs 8,500-crore (RS 85 billion) NBFC giant.

...

Combine & grow

"We have several pieces of the financial services' pie. From retail loans to forex, corporate credit, distribution of  third party products like mutual funds, etc, besides the insurance venture. We needed leadership to take all the businesses together and harness them and grow it further. We have our leader now," Biyani says.

He believes there a symbiotic relationship between retail and financial services. You grow one and the other can also grow, riding piggyback.

"Our aim should be, anything you buy from any Future Group outlet should have financing options by us. Also, we should offer other products, too," says a Future official.

"First, we tapped the consumption story via retail by going for the consumer's wallet share. Now, we want to tap his balance sheet, by offering services for his savings and investments as well," adds another executive.

A hunt is also on for three more independent directors of FCH, by search firm Egon Zehnder. The idea is to have a "blue chip brains trust", that can all chip in with their different perspectives.

But it's a no-brainer that to begin with, the action will hot up in retail financial services. That's where Vaidyanathan's retail banking and insurance expertise will come in handy.

For starters, FCH will be expanding its pan-India footprint by adding 40 boutique retail finance stores in the next few months.

"Future Money outlets will get a makeover at all our retail formats - from Big Bazaar, Home Town, Central and E-Zone, as we are already working with our creative agency, DMA Yellow Works," said a group executive.

...

But the different business units within the vertical will retain standalone strategies, even though integration with the Future Group ecosystem will be the key strategy driver, with in-store branches, kiosk sales and store bundles.

There will also be increased focus on asset-backed financing and an effort to have a secured book for at least 70 per cent of the total size.

With Vaidyanathan on board, Biyani's plans to launch own mutual fund services is also expected to crystallise. FCH had already applied for an asset management company licence, in Future Finance Ltd. The Future Credit Card programme, run with ICICI Bank, will also get a needed fillip.

"Don't get surprised if Vaidyanathan plays a pro-active role in the two insurance ventures as well. He can well become like a joint country head," said a retail industry veteran.

Growing the trade finance portfolio will also have obvious benefits for the retail operations. That would mean financing the supply chain, short-term working capital requirements and initial public offer financing.

With all the pieces expected to fall in place, the short-term business plan is ready. In the next two years, FCH's balance sheet is expected to grow to Rs 6,000 crore (Rs 60 billion), with 200 boutique stores.

By its projection, over the next five years, close to nine million first-time retail customers are likely to buy a financial product. That's the universe FCH would like to tap.

...

Bettering the past

History, however, hasn't been too kind to FCH. It was aimed to leverage Future Group's pan-India footprint to be India's leading retailer of financial products and services, offering integrated financial products from retail loans to trade finance, corporate lending and wholesale credit and other financial products.

It also has an enviable customer footprint: From mass-market retail to high-end corporate clients.

But with a Rs 2,000-crore (Rs 20 billion) loan book (consumer and corporate), Rs 251.6 crore (Rs 2.52 billion) revenue and Rs 60.1 crore (Rs 601 million) profit before tax (as on this March), it has arguably been a laggard compared to many of its peers and also when compared to other Future Group divisions and businesses.

"The performance has been under scrutiny also because it had a high-profile listing two years before. Compared to the listing price of around Rs 765 a share, today it is languishing at Rs 250/share (as on July 30). That's a 68 per cent erosion in value," said a Mumbai-based financial sector analyst with a foreign brokerage firm, on condition of anonymity.

In this period, the earlier brass of Future Capital, led by ex-Goldman Sachs official Sameer Sain, also moved out after it was split into two. The private equity business and the advisory services agreements were being spun off as Everstone Capital and came under Sain.

Other ventures such as insurance, retail financial services and wholesale credit was grouped under FCH, under the direct supervision of Biyani himself. Before Vaidyanathan, FCH had brought in K K Rathi from the Motilal Oswal group as its director.

"After its big-bang launch, Future Capital could not fully exploit its synergies with Pantaloon Retail and failed to live up to its expectations," admits a senior group official who did not want to be identified.

...

How Biyani got Vaidi

A series of private meetings at Kishore Biyani' Nepean Sea Road residence in Mumbai, followed by interactions with Future Group' personnel heads at V Vaidyanathan's(known in his close circles as Vaidi) home.

It took more than three months and more than two dozen meetings for Biyani to convince Vaidyanathan to come on board. So, no intermediaries, no outsiders or CEO placement consultants. It had to be one-on-one from Day 1.

It was especially delicate as Biyani' relationship with ICICI Bank goes back over a decade and the bank' chairman, K V Kamath, has been more of a personal friend and advisor. So, to woo away one of his high-profile poster boys without upsetting old friendships required deft maneuvering.

One of the earliest investors in Biyani' Pantaloon Retail was ICICI Group' private equity arm, ICICI Ventures.

Vaidyanathan, MD & CEO of ICICI Prudential Life Insurance till now, had been with ICICI Bank for a decade after he left Citibank. A retail banker for most of his life, he built the retail franchise at the bank till Kamath' retirement, when in a top-deck shuffle, he was moved to head the bank's life insurance joint venture.

His exit will be the fourth top-level exit from India' largest private sector bank in just a year. Earlier, Shikha Sharma left to head Axis Bank, Sanjoy Chatterjee quit for Goldman Sachs'top job and Renuka Ramnath of ICICI Ventures moved on to start her own private equity agency.

There is a buzz in the market that after combining his salary and other perks and a 10 per cent sweat equity, Vaidyanathan is expected to be one of the highest-paid, non-promoter CEOs in the country.

Biyani refuses to talk specifics on remuneration, but gives this hint: "t will be a joint wealth creation exercise. Wealth can be created as you perform and grow the business and have better profitability."

At Sunday' board meeting, after Vaidyanathan was introduced and his appointment approved, he was allotted two million warrants of FCH at the Sebi-formulated price of Rs 237 per share.

Upon conversion of these warants after 18  months, Vaidyanathan will have a three per cent stake in the company. The FCH board also alloted eight million warrants to Biyani at the same price. When converted, Biyani' stake will go by another 10 per cent.