Amazon deal not just for funds; it’s to share payment ecosystem: Future Group Founder Kishore Biyani

Dated: 29th August 2019

Updates on Indian Market:

On Wednesday, BSE benchmark Sensex plunged over 300 points intraday, but recovered to settle at 37,452, down  0.50%, while the Nifty closed below the 11,050-mark led by a rebound in HDFC and gains in IT stocks. Yes Bank, Tata Steel shares emerged among the biggest losers, slumping up to 7%. Concerns over the state of the Indian economy stayed as analysts believe government’s dole-outs may not do much to prop up demand.

Amazon deal not just for funds; it’s to share payment ecosystem: Future Group Founder Kishore Biyani

Global E-Commerce giant Amazon acquired a 49% stake in Future Group’s Future Coupons, with an option to acquire the entire stake later. Future Coupons Limited is engaged in developing innovative value-added payment products and solutions such as corporate gift cards, loyalty cards, and reward cards primarily for corporate and institutional customers. Future Coupons currently does not own a stake in Future Retail but recently subscribed to convertible warrants for Rs 20 bn.

According to the founder of Future Group – Kishore Biyani, the deal is not just to raise money but also to become a part of the payment ecosystem. The deal is basically aimed at enhancing the payments portfolio of both companies.

Mr Biyani mentioned that they have a database of 8 bn transactions and 55 mn customers. Payments are one platform where they can acquire the customer base and if the customer starts using your payment mechanism then loyalty increases. So it’s about getting into the ecosystem. Meanwhile, Amazon had also emphasized the same saying that the tie-up between the two will enhance Amazon’s existing portfolio of investments in the payments landscape in India.

Food distribution centres: Mr Biyani also stated that the company has embarked on Rs 10 bn investment plan to create distribution centres for its food-on-demand venture. The group’s supply chain company, Future Supply Solutions plan to set up about 38 such centres. Named India Food Grid, the project will connect the entire country through a single, multi-layer network.

Media reports that Future Coupons, owned by Future Group promoter Biyani, holds 39.6 million warrants in Future Retail, which when exercised, will convert into a 7.3% stake in the company. Future Coupons said the stake will be acquired for about Rs 20 bn through warrants in February. The first tranche of Rs 5bn was issued in April. Amazon is paying the remaining amount of Rs 15 bn to get 3.5% stake in Future Retail, said officials aware of the development. This translates into Amazon valuing Future Retail at more than double its current market capitalisation of about Rs 210 bn  

Consensus Estimate (Source: market screener website)

Future Retail stock price was Rs 391/- as of close price of 28-08-19 and traded at 45x /37x /28x the consensus EPS for FY20E / 21E / 22E EPS of Rs 17/17.8/19.5 respectively. Consensus target price is Rs 533/- implying PE of 27x for FY22E EPS of Rs 19.5.