Future Capital Holdings - Change in promoter holding. We retain a Buy - Anand Rathi

The Board of Future Capital Holdings has approved a share-purchase agreement between Pantaloon Retail (India) (PRIL), Future Value Retail (FVRL) and Cloverdell Investment, a subsidiary of Warburg Pincus, for the sale of a stake in FCH at Rs.162 a share.

- Contours of the deal. Cloverdell has agreed to purchase a minimum 40% (maximum 53.67%) in FCH, at Rs.162 a share (1.3x FY12 BV), and an 18.3% premium to yesterday's closing. As a result, Warburg will acquire a controlling stake in FCH, subject to shareholder approval. Cloverdell has also agreed to infuse capital into FCH, of Rs.1bn in the form of Compulsorily Convertible Preference shares, at Rs.162 each. Additionally, Cloverdell is proposing to launch a mandatory open offer to acquire an additional 26% at an offer price of Rs.162, similar to the deal price paid to existing promoters.

- Outlook. From FCH's perspective Warburg's presence mitigates the promoter-change overhang and strengthens the Board and enhances decision-making capabilities. Additionally, capital infusion of Rs.1bn in FCH by Warburg would boost tier-1 capital and aid the NBFC to sustain its high loan-growth of more than 35% over FY12-14e. Robust disbursement growth, better productivity and stable asset quality are likely to drive an improved RoE to 17.8% by FY14e (6.8% in FY11). The valuation, at 0.9x FY13e ABV, is inexpensive. We retain our estimates and price target.

- Valuation: At our target of Rs.187, the stock would trade at FY13e and FY14e PBV of 1.2x and 1.1x respectively. Risk: slower-than-expected economic growth could hurt loan growth and higher-than-expected delinquencies could impact profit growth.

Source : Equity Bulls

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