What is happening with Future Group Companies?

Before discussing Future group companies. Let me discuss some basics of finance.

Here are a few ways through which a company raises money?

1. Equity
2. Debt
3. Pledging of shares (applicable to listed companies)

Basically, a company borrows money in order to pay previous loans(debts), daily activities or starting of new projects.

There is no harm in borrowing money from others but the problem arises when the borrowed money increases above a certain threshold. Let us learn this by a simple example.

Suppose Company A has a balance sheet as mentioned below (Fig in crores)

Here, Company A can easily bear losses up to 30 crores because it has equity capital of that amount. Equity shareholders are owners of the company and they take part in profit or losses (only till the amount they invested) of the company, in short, they take a complete risk on their investment. In this case, company A can go bankrupt if it takes losses above 30 crores.

Now, lets us take another example.
Company B has a balance sheet as mentioned below (Fig in crores)

Here, Company B can bear losses up to 70 crores. In this case, the company has greater flexibility of bearing losses up to 70 crores, which adds to the margin of safety for the company.

Here one needs to understand that, under normal business conditions, companies are easily able to borrow money from creditors and also able to refinance their long term loans. But the situation becomes different when the global markets take a U-turn and experience slow down
Under such cases

1. It is really difficult for businesses to continue growing at the same growth rate. (Profit margins get narrower)
2. Sometimes the business also defaults on interest and principal payments.
3. It becomes extremely difficult to refinance existing loans.
4. Debt(Loans) becomes a burden for the company as the company needed to generate sufficient cash to pay debtor(interest + principal).

Now, as we have got sufficient background on the working of companies, we will focus on Future group companies.

Brief about Future Group

Future Group is an Indian conglomerate headquartered in Mumbai, Maharashtra, India. The company is known for having a significant prominence in Indian retail and fashion sectors, with popular supermarket chains like Big Bazaar and Food Bazaar, lifestyle stores like Brand Factory, Central, etc. The group also has a notable presence in integrated foods and FMCG manufacturing sectors. Future Retail Limited and Future Lifestyle Fashions Limited, two operating companies of Future Group, are among the top retail companies listed in BSE with respect to assets,^[3] and in NSE with respect to market capitalization.^[4]

List of Future group companies listed on exchanges

1. Future Supply Chain Limited
2. Future Consumer
3. Future Retail
4. Future Enterprise
5. Future Market Networks

Snapshot of financial information related to the Future group companies

List of negative things in all the above companies

1. High borrowings.
2. High pledging of shares. (Pledging is another way to borrow money but it is highly risky and once it is done, it is extremely difficult for a company to get out)
3. Low promoter holding.
4. The price to free cash flow is negative.

4-year price charts at a future group companies

The combined debt of the future group listed companies is around 12,000 crores. For last 1 month, almost every future group listed company is locked in the lower circuit because of the high pledging of stocks.
The future group operates in a market place where there is high competition and their margins are continuously reducing and business regularly posting losses.
It is clear that few Future group companies may not survive if there is severe turmoil in equity markets (due to heavy pledging of shares).

References

1. Charts: Zerodha
2. Financial Data: Screener.in