Future Capital Holdings-- Change in promoter holding. : Anand Rathi

Future Capital Holdings
Change in promoter holding. We retain a Buy
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 `162 a share.

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 Contours of the deal. Cloverdell has agreed to purchase a minimum
40% (maximum 53.67%) in FCH, at `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 `1bn in the form of
Compulsorily Convertible Preference shares, at `162 each. Additionally,
Cloverdell is proposing to launch a mandatory open offer to acquire an
additional 26% at an offer price of `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 `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 `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.