Stock Review: Future Capital Holdings (FCH)

KISHORE Biyani is hoping to recreate the Big Bazaar magic in the world of financial services. With the launch of financial superstores this week, Future Capital Holdings (FCH) intends to offer financial services ranging from loans, equity broking, insurance to wealth management. Analysts say the company may have started out as a player in the unsecured consumption-lending space, but is now morphing into a player in the secured loans segment.

Over the next one year, the company intends to lend 1,000 crore to the retail segment (against gold) and to the small and medium segment (against property). India's gold loans market is estimated to be between $25 billion and $50 billion. While FCH's loan against gold portfolio is miniscule at present, it is expected to be between 9per cent and 10 per cent of the total loan portfolio by FY13E with `600-700 crore in assets under management.

Even though the company will continue its consumption lending business, the idea of secured lending appeals analysts as it will result in optimal utilisation of capital. In the wholesale credit segment, the focus will continue to be on medium-term loans to promoters (against liquid shares) and project financing with defined takeout by escrow of project cash flows.

Emkay Securities estimates loan against property market size to be approximately `20,000 crore and the competition level in this segment is relatively low, as it is mostly done by few NBFCs and banks. "We expect FCH's loan against property portfolio to grow at a compounded annual growth rate (CAGR) of 100 per cent over FY11-13E to `3,700 crore," says Emkay's research head Ajay Parmar. Analysts like the company's strategy of growing its book entirely through secured lending with spreads of 4.55per cent.

In the past, the company's retail loans largely comprised of unsecured personal loans (now discontinued) and consumption loans. Future Capital had followed the subsidiary route for its retail loans business and the parent company had to give guarantees (Rs 670 crore in FY10) for the subsidiary's borrowing. Due to this, analyst believe, there was a sub-optimal utilisation of capital. The recent merger of the subsidiary with the parent will release capital, as guarantees will no longer be required. Also, with the company shifting its focus to secured loans, the company will save on provisioning.

In the last one year, FCH has already grown its loan book by 60 per cent to `2,400 crore. The loan book is expected to touch `5,000 and `7,000 crore, respectively, over FY12 and FY13. Approximately, 62 per cent of its loan portfolio is expected to be retail, while the remaining 38 per cent would be wholesale loans.