Future Retail board meets tomorrow, might opt for Rs 600-cr QIP

Raising new funds is important for the company due to its high debt levels and debt to equity ratio, say analysts

Kishore Biyani's Future Retail could go for a qualified institutional placement (QIP) of shares soon.

According to market sources, a Rs 600-crore QIP is possible, wherein the promoters would put in Rs 400 crore and other investors the rest. The money will be used to repay debt. The board of directors meets on Wednesday to decide.

Responding to the buzz around the QIP, the stock went up 4.5% on Tuesday, to close at Rs 45.50.

Late last week, Future Retail said it would hold a board meeting to explore options to raise funds. Among these were issue of equity shares, debt or hybrid instruments or warrants convertible into equity shares to qualified institutional buyers, promoters or investors on a preferential basis, and to issue equity shares of any class to existing shareholders on a rights basis.

Currently, the promoters hold 48.4%, mutual funds and financial institutions 8.4%, foreign institutional investors have 20.4% and others 22.4% in the company.

It is also expected to decide on selling stake in Future Lifestyle Fashions, where it holds about 20%, sources said.

However, a mail sent to a company spokesperson did not elicit a response.

Raising new funds is important for the company due to its high debt levels and debt to equity ratio, said analysts. The debt is Rs 5,500 crore the company paid interest of Rs 155 crore in the March quarter, 98% of its profit before interest and taxes. The company's debt is around 1.8 times the equity.

"QIP is a good option for any debt-ridden company. Their debt to equity ratio is very high, so the fund raising will help," said Abneesh Roy, associate director, institutional equities, at Edelweiss Securities.

He says the various divestments it had done are yet to result in a significant reduction of the debt. Future had sold the Pantaloons fashion format to the Aditya Birla Group, a financial services company to Warbug Pincus, and sold stake in apparel brands Biba, AND to investors. It also listed a separate company, Future Lifestyle Fashions by hiving off the fashion business of Future Retail and Future Ventures.

The profit after tax in the March quarter was Rs 1.8 crore on revenue of Rs 2,345 crore.