Winning Strokes

The BSE Sensex is now trading at a positive note at 48,848.82 up 408.70 points (+0.84%), while the Nifty50 is now seen at 14,453.10 up 128.20 points. (+0.89%). The Nifty is likely to trade sideways or with 50/60 points range till this FY ends. However, the stock specific action will rule the roost. Photo: The Economic Times. 

#The stock of Future Retail Ltd (Rs.47) has come down from the recommended price due to fear factor among the investors. However let me put forward some points:

§It is a Rs.30,000 crore company and the chances of it going belly up is impossible at this stage, when big giants have either invested in its sister company or is likely to buy out the whole. It is only time, that the scrip would move up.

§There was a news in a financial daily that:

//Kishore Biyani's Future Group companies are in the last leg of their survival battle as the suspension of Insolvency and Bankruptcy Code (IBC) is going to end on March 31. The group companies, which have outstanding debt of around Rs.17,000 crore, are in negotiations with the banks for one-time restructuring of loans. While the banks are yet to finalise the repayment reliefs, the group companies are worried about the non-bank lenders and operational creditors, who can also take the companies to the bankruptcy court post March//

But this is half the story as the government of India in January this year had invited comments from public on Pre-packaged Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016.  This system is very popular in the US. 

The report is read as:

1.Committee (ILC) vide order dated 24.6.2020 to prepare a detailed scheme for implementing pre-pack and prearranged insolvency resolution process.

2. The sub-committee has designed a pre-pack framework within the basic structure of the Insolvency and Bankruptcy Code, 2016, for the Indian market as detailed in their report of October, 2020.

3. Public comments are hereby invited on recommendations of Sub-committee

of ILC on Pre-packaged Insolvency Resolution Process. Suggestion/comments, if any,

along with brief justification may be submitted online therein at the below mentioned

web link by the end of business hours on 22nd January, 2021.

The financial stability report ("FSR") of December 2020 released by the Reserve Bank of India ("RBI") predicted a sharp rise in the gross non-performing assets of banks by September 2021.

The FSR predicted uncertainty in the economic recovery route, although it reassured that the worst is behind us. 

However, any economic recovery is impossible without the resolution of bad debts and especially the cases related to Covid-19 defaults.

Consequently, the report of sub-committee of Insolvency Law Committee on the pre-packaged insolvency resolution process (PPIRP) published on 8 January 2021 by the Ministry of Company Affairs is a timely and decisive intervention, which will Invariably save many of the affected companies from going belly up.

Moreover, a report in Mint on 22nd March, 2021 says that the Future Retail group may get a 2-year moratorium, but no concession on interest rates. The report is read as:

//Lenders to Future Lifestyle Fashions Ltd have prepared a draft debt resolution plan that will give the company that runs the Central and Brand Factory outlets a two-year repayments moratorium, but no concession on interest rates, according to two bankers aware of the plan.

Future Group owes around $3 billion in loans, which bankers fear may turn sour if the legal battle with Amazon.com Inc isn’t resolved quickly.

Future Lifestyle alone owes creditors ₹1,714 crore, including the money it borrowed by selling non-convertible debentures (NCDs), according to CARE Ratings.

Future Lifestyle alone owes creditors ₹1,714 crore, including money it borrowed by issuing non-convertible debentures, according to CARE RatingsClick on the image to enlarge

With the Future Group’s ₹24,713 crore deal with Reliance Industries Ltd stalled again by a recent Delhi high court order, bankers are preparing loan recast proposals for Future Group companies, including Future Lifestyle and Future Retail Ltd (FRL). This, as Mint reported earlier, is a backup plan and will be implemented if the deal with Reliance Retail collapses.

The total debt under the purview of this recast is ₹2,007 crore, including NCDs of ₹125 crore, the bankers said on condition of anonymity. They said that the plan has received an RP4 rating from credit rating companies, the minimum level required to qualify for a recast plan under the Reserve Bank of India’s 6 August circular.

“The residual tenure of the term loan will be extended by 24 months, with repayments commencing in the December quarter (Q3) of FY23," said one of the bankers cited above. The plan has not been approved by the committee of lenders for Future Lifestyle.

A tussle over the assets of Future Group between two of the world’s richest men—Mukesh Ambani of Reliance and Jeff Bezos of Amazon—has left lenders scrambling to ensure that they can recover loans made to the Future Group. Bankers have signed inter-creditor agreements, a precursor to debt recast, ensuring that all lenders are on the same page and avoid delays in approvals. Last year, banks invoked the debt recast after RBI clarified that lenders could do so even without a resolution plan. Now, banks have time till the end of June to implement the resolution plan.

Reliance Retail is the largest retailer in India with a network of 12,200 retail stores.

“It (Future Group) is a good business. So, I don’t think the business will shut down. It may change hands and financial creditors, and suppliers may certainly take a hit," said said Arvind Singhal, chairman and managing director at Technopak Advisors, India.

The stock of Future Retail Ltd, which is now trading at Rs.47 has perhaps hit the ultimate low. I had earlier predicted that, at best it can go down upto Rs.47, which is at the CMP. 

Use the dips to average the scrip, as any government would not like a donastic retail giant to fail, creating further complications.

A report in India Today on 24 March, 2021 says the following: 

Future Retail, which has about 1,800 stores across formats—apparel, lifestyle and groceries—and overall sales of Rs 26,000 crore, saw its debt spiralling out of control at Rs 13,000 crore in 2019. The final blow came in the form of the pandemic, halting Biyani’s business and pushing him closer to defaulting on his loans. The absence of an e-commerce arm closed all doors on his business as he neared the end-game. In August 2020 Future Retail sold its retail, wholesale, logistics and warehousing units to Reliance Retail for Rs 24,713 crore. This seemed to be a win-win deal for both Biyani and RIL chairman Mukesh Ambani, as the latter harboured big ambitions in e-tail but had little to boast about in offline retail except for electronics, which comprises three-fourths of its stores and gives it Rs 45,000 crore in annual sales. Ambani found in Future Group the perfect platform for his retail play. 

I feel it is pertinent to me mention here that most people lose money in stocks because they either they don't have any patience (consider equity market to be a Casino), don't do adequate reseach or go for high margin delivery traders. Margin trading is akin to trading in Stock Futres, which needs to be avoided in general; unless there are too compelling reasons to go for the same. 

P. N:  I don't hold any shares of the company but some of the blog readers may be having it in their respective portfolios.