Future venture autosave (1)

Capital structureThe main problem of the capital structure is how to raise the capital. The structure of various sources of capital is called ‘Capital Structure’. The capital structure of a company may consist of equity shares only, or of equity shares and preference shares both, or of equity shares, preference shares and debentures too etc. it may be simple or may be complex. The debts in the capital structure impose fixed burden of interest on the company while equity in the capital structure does not involve such burden of payment.

Meaning of Capital Structure:

simply saying, it’s the ‘composition of capital’. Also we can say that “Capital structure of a company refers to the make up of its capitalization”.

The ratio of equity shares to the total of preference shares and debt is called ‘Capital Gearing.’ If the ratio of preference shares and debt is high, the capital structure is said to be highly geared. If the ratio of equity shares is high, the capital structure is said to be low geared.

Future Venture

Incorporated in 1996, Future Ventures India Ltd is part of Future Group (led by Kishore Biyani and owners of Future Bazaar, Pantaloons, Central, Big Bazaar, Food Bazaar, Home Town and E-zone).

Future ventures India Ltd is in the business of creating, building, acquiring, investing in and operating innovative and emerging businesses in consumption-led sectors in India. Within the consumption-led sectors, Future ventures has primary focus on opportunities in the business segments of Fashion, FMCG, Food Processing, Home Products, Rural Distribution and Vocational Education.

As of date, company has 13 Business Ventures, six of which are its subsidiaries. Company believes in applying a disciplined investment approach and building strong partnerships with management and promoters.

Company Promoters:

The Promoters of the company are:

Individual Promoter: Kishore Biyani

Corporate Promoters:1. Future Capital Investment Private Limited;2. Future Corporate Resources Limited (erstwhile PFH Entertainment Limited);3. Future Knowledge Services Limited;4. Pantaloon Industries Limited; and5. Pantaloon Retail (India) Limited.

CAPITAL STRUCTURE BEFORE AN IPO

The share capital of the Company as at the date of the Red Herring Prospectus is set forth below:

(In Rs., except share data)

Aggregate Value atFace value

AggregateValue at Issue

PriceA) AUTHORISED SHARE CAPITAL

5,00,00,00,000 Equity Shares of ` 10 each 50,00,00,00,000

B) ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARECAPITAL BEFORE THE ISSUE82,62,43,700 Equity Shares of ` 10 each 8,26,24,37,000

C) PRESENT ISSUE IN TERMS OF THIS RED HERRINGPROSPECTUS[●] Equity Shares of face value of ` 10 each [●] [●]

D) ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARECAPITAL AFTER THE ISSUE[●] Equity Shares of ` 10 each fully paid up shares [●] [●]

E) SHARE PREMIUM ACCOUNTBefore the Issue NilAfter the Issue [●]

Changes in Authorized Share Capital

The initial authorized share capital of ` 1,00,00,000 divided into 10,00,000 Equity Shares was increased to 5,00,00,000 divided into 50,00,000 Equity Shares pursuant to the resolution of the shareholders dated August 10, 2007.

The authorized share capital of the Company was further increased from 5,00,00,000 divided into 50,00,000 Equity Shares to ` 30,00,00,00,000 divided into 3,00,00,00,000 Equity Shares through a resolution passed by the members of the Company at the EGM held on October 11, 2007.

The authorized share capital of the Company was further increased from 30,00,00,00,000 divided into 3,00,00,00,000 Equity Shares to 50,00,00,00,000 divided into 5,00,00,00,000 Equity Shares through a resolution passed by the members of the Company at the EGM held on February 5, 2008.

Notes to Capital Structure Share Capital History

(a) The following is the history of the equity share capital and securities premium account of the Company:

Date ofallotmentof theEquityShares

No. ofEquitySharesAllotted

FaceValue(`)

IssuePrice(`)

Nature ofConsideration

Cumulativeno. ofEquityShares

CumulativePaid-upEquity sharecapital (`)

CumulativeSharePremium(`)

Nature ofAllotment

August 9,1996

700 10 10 cash 700 7000 Nil Issue of shares onsubscriptiontoMemorandumand Articlesof Association

November16, 1996

58000 10 10 Cash 58700 587000 Nil Preferential allotment

December5, 1996


June 25,1997


September23, 1997


September25, 1997


February26, 2002

(52000) 10 - - 293700 2937000 Nil -

October 4706300 10 10 Cash 5000000 50000000 Nil Preferential

11, 2007 allotmentNovember28, 2007


January28, 2008


March 28,2008


July 23,2008


January30, 2010


March 4,2010


May 29,2010


August 6,2010


History of the Equity Share Capital held by the Promoters

(a) Details of the build up of the Promoter’s shareholding in the Company:

Date ofAllotment /Transfer

No. of EquitySharesIssued/Transferred

CumulativeNo. ofEquityShares

FaceValue(`)

Total Issue /AcquisitionPrice (`)

Nature ofConsideration

Nature ofTransaction

Future Capital Investment Private LimitedJanuary 28,2008

18,00,000 18,00,000 10 1,80,00,000 Cash Preferential allotment

May 29,2010

10,00,00,000 10,18,00,000 10 100,00,00,000 Cash Preferential allotment

Future Corporate Resources LimitedJanuary 30,2010


March 4,2010


March 11,2010

36,45,000 6,80,45,000 10 3,64,50,000 Cash Purchase

Future Knowledge Services LimitedAugust 6,2010

2,77,93,700 2,77,93,700 10 28,08,00,000 Cash Purchase

PIL Industries Limited (formerly known as Pantaloon Industries Limited)January 30,


2010Pantaloon Retail (India) LimitedAugust 6,2010

15,00,00,000 15,00,00,000 10 1,50,00,00,000

Cash Preferential allotment

Kishore BiyaniN.A. Nil Nil N.A. N.A. N.A. N.A.

Details of Promoters’ contribution and Lock-in:

The Promoters shall contribute Equity Shares in the Issue constituting not less than 20% of the post-Issue capital, which shall be locked in for a period commencing from the date of Allotment in the Issue and shall remain locked-in for a period of (i) three years thereafter, or (ii) three years from the date of complete utilization of the Net Proceeds, or (iii) three years from the date when the Net Proceeds or any part thereof are distributed to the shareholders of the Company in the manner indicated in the section entitled “Objects of the Issue” beginning on page 82, whichever is later. The requirement regarding lock-in of the Equity Shares for the period of three years from the date of commencement of commercial production shall not be applicable as the Company is not a manufacturing company. The Equity Shares constituting Promoters’ contribution shall be eligible therefor in terms of the SEBI Regulations.

As of the date of this Red Herring Prospectus, the Promoters hold 46,96,38,700 Equity Shares which constitutes 57% of the pre-Issue paid-up equity share capital of the Company. Out of the aggregate shareholding of the Promoters of 46,96,38,700 Equity Shares, the Promoters have acquired 46,78,38,700 Equity Shares during the one year preceding the date of the Draft Red Herring Prospectus at a price which may be lower than the Issue Price of which 43,64,00,000 Equity Shares (the “Available Contribution Shares”) are available to be contributed towards minimum Promoters’ contribution.

The Promoters shall provide the difference between (a) the acquisition price of Equity Shares to be contributed towards minimum Promoters’ contribution from the Available Contribution Shares and (b) the Cap Price, for an amount aggregating ` [●] lakhs. The said amount will be brought into an escrow account at least one day prior to the Bid/Issue Opening Date and will be utilized in accordance with the SEBI Regulations if the conditions specified in Regulation 33(1)(b) of the SEBI Regulations are not complied with. In the event that the Issue Price is lower than the Cap Price, the difference between the Issue Price and the Cap Price lying to the credit of the escrow account will be refunded to the Promoters. The Company undertakes that the Equity Shares constituting minimum Promoters’ contribution in the Issue, which shall be locked-in for three years, shall be eligible for minimum Promoters’ contribution in terms of the SEBI Regulations.

The details of the Equity Shares, which shall be locked-in for a period commencing from the date of Allotment in the Issue and shall remain locked-in for a period of (i) three years thereafter, or (ii) three years from the date of complete utilization of the Net Proceeds, or (iii) three years from the date when the Net Proceeds or any part thereof are distributed to the shareholders of the Company.

The minimum Promoters contribution has been brought to the extent of not less than the specified minimum lot and from the persons defined as Promoters under the SEBI Regulations. The Promoters contribution constituting not less than 20% post-Issue paid-up equity share capital shall be locked-in for a period commencing from the date of Allotment in the Issue and shall remain locked-in for a period of (i) three years thereafter, or (ii) three years from the date of complete utilization of the Net Proceeds, or (iii) three years from the date when the Net Proceeds or any part thereof are distributed to the shareholders of the Company in the manner indicated in the section entitled “Objects of the Issue” beginning on page 82, whichever is later.

Details of pre-Issue Equity Share capital locked in for one year:

In addition to the 20% of the post-Issue equity shareholding of the Company held by the Promoters and locked in for three years as specified above, the entire pre-Issue equity share capital will be locked-in for a period of one year from the date of Allotment.

Other requirements in respect of lock-in:

The Equity Shares held by the Promoters may be transferred to and amongst the Promoter Group or to a new promoter or persons in control of the Company, subject to continuation of the lock-in in the hands of the transferees for the remaining period and compliance with the SEBI Takeover Regulations as applicable.

The Equity Shares held by person other than the Promoters prior to the Issue may be transferred to any other person holding Equity Shares which are locked-in along with the Equity Shares proposed to be transferred, subject to continuation of the lock-in in the hands of the transferees for the remaining period and compliance with the SEBI Takeover Regulations, as applicable.The Equity Shares held by the Promoters which are locked-in for a period of three years from the date of Allotment in the Issue can be pledged with any scheduled commercial bank or public financial institution as collateral security for loans granted by such banks or institution, provided that the pledge of Equity Shares can be created when the loan has been granted by such bank or financial institution for financing one or more of the objects of the Issue and pledge of Equity Shares is one of the terms of sanction of the loan.

The Equity Shares held by the Promoters which are locked-in for a period of one year from the date of Allotment in the Issue can be pledged with any scheduled commercial bank or public financial institution as collateral security for loans granted by such bank or financial institution, provided that the pledge of the Equity Shares is one of the terms of sanction of the loan.

The shareholding pattern of the Company

The table below presents the shareholding pattern of the Company as on the date of filing this Red Herring Prospectus:

Category of Shareholder

No. ofShareholde

rs

Total No. ofShares

Total No. ofShares held inDematerialized

Form

Total Shareholding asa % of total No. of

Shares

Shares pledged orotherwise encumbered

As a% of

(A+B)

As a % of(A+B+C)

No. ofshares

As a% of (IX) =

(VIII/IV)*100

A. Shareholding ofPromoter andPromoter Group1. IndianIndividuals / HinduUndivided Family

- - - - - - -

Central Government /State Government(s)

- - - - - - -

Bodies Corporate

6 49,06,38,700 38,88,38,700 59.38 59.38 - -

Financial Institutions

- - - - - - -

Any Other (Specify)

- - - - - - -

Sub Total (A1) 6 49,06,38,700 38,88,38,700 59.38 59.38 - -2. ForeignIndividuals / (Non-Resident Individuals/Foreign Individuals)

- - - - - - -

Bodies Corporate

- - - - - - -

Institutions - - - - - - -Any Other (Specify)

- - - - - - -

Sub Total (A2) - - - - - - -Total shareholding ofPromoter andPromoter Group(A1) + (A2)

6 49,06,38,700 38,88,38,700 59.38 59.38 - -

B. Public Shareholding1. InstitutionsMutual Funds / UTI

- - - - - - -

Financial Institutions/Banks

- - - - - - -

Central Government/State Government(s)

- - - - - - -

Insurance Companies

- - - - - - -

FIIs - - - - - - -Foreign VentureCapital

- - - - - - -

Any Other (specify)

- - - - - - -

Sub Total (B1) - - - - - - -2. Non-InstitutionsBodies Corporate

92 21,31,26,680 19,20,76,680 25.79 25.79 0 0.00

Individuals - - - - - - -

Individualshareholders holdingnominal share capitalup to Rs. 1 lakh

723 29,15,412 29,00,412 0.35 0.35 0 0.00

Individualshareholders holdingnominal share capitalin excess of Rs. 1lakh

582 11,71,02,908 10,93,47,408 14.17 14.17 0 0.00

Any Other (Specify)(i) Directors/RelatIve

- - - - - - -

(ii) ClearingMember

2 14,00,000 14,00,000 0.17 0.17 0 0.00

(iii) Trust - - - - - - -(iv) NRIs 3 10,25,000 10,25,000 0.12 0.12 0 0.00(v) NRN 2 35,000 35,000 0.00 0.00 0 0.00Sub Total (B2) 1,404 33,56,05,000 30,67,84,500 40.62 40.62 0 0.00Total Public shareholding(B1) + (B2)

1,404 33,56,05,000 30,67,84,500 40.62 40.62 0 0.00

Total (A) + (B) 1,410 82,62,43,700 69,56,23,200 100.00 100.00 0 0.00C. Shares held byCustodians andagainst whichDepository Receiptshave been issued

- - - - - - -

Total (A) + (B) + (C)

1,410 82,62,43,700 69,56,23,200 100.00 100.00 0 0.00

Equity Shares held by top 10 shareholders

Sr.No.

Name of the Shareholders No. of EquityShares held

Percentage ofShareholding

1 Pantaloon Retail (India) Limited 15,00,00,000 18.152 PIL Industries Limited 12,20,00,000 14.763 Future Capital Investment Private Limited 10,18,00,000 12.324 Bennett Coleman And Company Limited 10,00,00,000 12.105 Future Corporate Resources Limited 6,80,45,000 8.236 Future Knowledge Services Limited 2,77,93,700 3.367 Mixon Holdings Private Limited 2,50,00,000 3.028 Manz Retail Private Limited 2,10,00,000 2.549 Gujarat Fluorochemicals Limited 1,50,00,000 1.8110 Aman Overseas Private Limited 1,50,00,000 1.81

Employee stock option scheme

The special resolution passed by the Company at its AGM dated August 10, 2010 approved the grant of up to 5,00,00,000 equity shares (including up to 1,00,00,000 equity shares in aggregate for non-executive directors including independent directors on the Board) of face value of Rs. 10 each. As per the resolution, the maximum number of stock options under the ESOP Scheme to any employee in any financial year shall not exceed 1% of the paid-up equity share capital of the Company. Out of that options were granted for 1,32,80,000

INITIAL PUBLIC OFFERING

Objects of the issue:

The objects of the issue are:

1. To create, build, invest in or acquire, and operate business ventures2. For general corporate purposes3. To meet the issue expenses and achieve the benefits of listing on the stock exchanges.

Issue details: Issue open : Apr 25, 2011 – Apr 28, 2011 Issue type : 100% Book Built issue IPO Issue size : 75,00,00,000 Equity shares of Rs. 10 Face value : Rs. 10 per Equity share Issue price : Rs. 10 – Rs. 11 per equity share Market lot : 600 shares Minimum order quantity : 600 shares Listing at : BSE, NSE

Book Building

Number of Times Issue is Subscribed (BSE + NSE)As on Date & Time Qualified

Institutional Buyers (QIBs)

Non Institutional

Investors (NIIs)

Retail Individual Investors

(RIIs)

Total

Shares Offered / Reserved 375,000,000 112,500,000 262,500,000 750,000,000 Day 1 - Apr 25, 2011 17:00 IST

0.1800 1.2100 0.0200 0.2800

Day 2 - Apr 26, 2011 17:00 IST

0.1800 3.4800 0.0500 0.6300

Day 3 - Apr 27, 2011 17:00 0.2600 5.1300 0.1600 0.9500

IST Day 4 - Apr 28, 2011 18:15 IST

0.2600 7.8100 0.6100 1.5200

BASIS OF ALLOTMENT

Public issue of 75,00,00,000 equity shares of rs.10 each ("equity shares") of future ventures India limited (the "company" or the "issuer") for cash at a price of rs.10 per equity share aggregating up to rs.75,000 lacs (the "issue"). The issue constitutes 47.58% of the post issue paid-up capital of the company.

The face value of the equity shares is rs.10 each. The issue price of the equity share is rs.10 each and is 1 time the face value.

Issue opened on April 25, 2011. Issue closed on April 27, 2011 for QIB bidders and on April 28, 2011 for retail and non institutional bidders.

This is an issue for more than 25% of the post-Issue capital in accordance with Rule 19(2)(b)(i) of the Securities Contracts Regulations Rules, 1957 ("SCRR"). The Issue is being made through the Book Building Process wherein not more than 50% of the Issue shall be allocated on a proportionate basis to Qualified Institutional Buyers ("QIB") Bidders. 5% of the QIB Portion shall be available for allocation on a proportionate basis to Mutual Funds only, and the remainder of the QIB Portion shall be available for allocation on a proportionate basis to all QIB Bidders, including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further, not less than 15% of the Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 35% of the Issue shall be available for allocation on a proportionate basis to Retail Individual Bidders, subject to valid Bids being received at or above the Issue Price.

The Issue received 35,165 applications for 1,106,504,400 Equity Shares resulting in 1.4753 times subscription. The details of the applications received in the Issue from Qualified Institutional Buyers, Non-Institutional, Retail Individual Investor and Anchor Investors are as under: (Before technical rejections)

Category No. of Applications No. of Shares No. of times subscriptionA Retail Individual Bidders 35087 143559600 0.5469B Non Institutional Bidders 69 865543200 7.6937C Qualified Institutional Bidders 9 97401600 0.2597

Total 35165 1106504400

Final Demand

Bid Price No. of Equity Shares % to Total Cumulative Total Cumulative % to total10 111,149,400 9.653 111,149,400 9.65311 898,806,600 78.061 1,009,956,000 87.714

CUTOFF 141,462,000 12.286 1,151,418,000 100.000TOTAL 1,151,418,000 100.000

Allocation to Retail Individual Investors (After Technical Rejections)

The Basis of Allocation to the Retail Individual Investors, who have bid at cut-off or at the Issue Price of Rs. 10 per Equity Share, was finalized in consultation with the BSE. This category has been under subscribed to the extent of 0.5414 times. The total number of shares allotted in Retail Individual Investor category is 142,114,200 Equity Shares to 34,693 successful applicants. The under subscribed portion of 120,385,800 Equity Shares have been spilled over to Non-Institutional Bidders. The category-wise details of the Basis of Allotment are (sample) as under:

Category No. ofApplns.

% tototal

Total No. ofEquity Shares

applied

% tototal

No. ofEquity Shares

allocated

Ratio Total No. ofEquity Shares

allocated600 12,294 35.44 7,376,400 5.19 600 1:1 7,376,4001200 6,675 19.24 8,010,000 5.64 1,200 1:1 8,010,0001800 2,825 8.14 5,085,000 3.58 1,800 1:1 5,085,0002400 1,716 4.95 4,118,400 2.9 2,400 1:1 4,118,4003000 1,491 4.3 4,473,000 3.15 3,000 1:1 4,473,0003600 464 1.34 1,670,400 1.18 3,600 1:1 1,670,4004200 715 2.06 3,003,000 2.11 4,200 1:1 3,003,0005400 218 0.63 1,177,200 0.83 5,400 1:1 1,177,2006000 755 2.18 4,530,000 3.19 6,000 1:1 4,530,0007200 100 0.29 720,000 0.51 7,200 1:1 720,0007800 70 0.2 546,000 0.38 7,800 1:1 546,0009600 139 0.4 1,334,400 0.94 9,600 1:1 1,334,40010200 61 0.18 622,200 0.44 10,200 1:1 622,20014400 6 0.02 86,400 0.06 14,400 1:1 86,40015000 41 0.12 615,000 0.43 15,000 1:1 615,00015600 9 0.03 140,400 0.1 15,600 1:1 140,40016200 12 0.03 194,400 0.14 16,200 1:1 194,40016800 12 0.03 201,600 0.14 16,800 1:1 201,60019200 2 0.01 38,400 0.03 19,200 1:1 38,40019800 55 0.16 1,089,000 0.77 19,800 1:1 1,089,000

Allocation to Non Institutional Investors (After Technical Rejections)

The Basis of Allocation to the Non-Institutional Investors, who have bid at the Issue Price of Rs. 10 per Equity Share, was finalized in consultation with BSE. This category has been over-subscribed to the extent of 1.3798times. The total number of Equity Shares allotted in this category is 510,484,200 Equity Shares to 64 successful applicants. As per the Red Herring Prospectus, the spill over portion from Retail Category (120,385,800 Equity Shares) and QIB Category (277,598,400 Equity Shares) added to this category and were allotted Equity Shares on proportionate basis. The category-wise details of the Basis of Allotment are (Sample) under:

Category No. ofApplns.

% tototal

Total No. ofEquity Shares

applied

% tototal

No. ofEquity Shares

allocated

Ratio Total No. ofEquity Shares

allocated18600 3 4.69 55,800 0.01 13,480 1:1 40,44019200 1 1.56 19,200 0 13,915 1:1 13,91519800 1 1.56 19,800 0 14,350 1:1 14,35021000 1 1.56 21,000 0 15,220 1:1 15,22036000 1 1.56 36,000 0.01 26,091 1:1 26,09172000 2 3.13 144,000 0.02 52,181 1:1 104,36290000 2 3.13 180,000 0.03 65,227 1:1 130,454100200 1 1.56 100,200 0.01 72,619 1:1 72,619117600 1 1.56 117,600 0.02 85,230 1:1 85,230181800 2 3.13 363,600 0.05 131,758 1:1 263,516225000 1 1.56 225,000 0.03 163,067 1:1 163,067300000 1 1.56 300,000 0.04 217,423 1:1 217,423600000 1 1.56 600,000 0.09 434,845 1:1 434,845909000 2 3.13 1,818,000 0.26 658,791 1:1 1,317,5824317600 1 1.56 4,317,600 0.61 3,129,145 1:1 3,129,1459090600 1 1.56 9,090,600 1.29 6,588,338 1:1 6,588,33845454200 1 1.56 45,454,200 6.45 32,942,558 1:1 32,942,55879920000 1 1.56 79,920,000 11.35 57,921,364 1:1 57,921,36486363400 1 1.56 86,363,400 12.26 62,591,165 1:1 62,591,16591809600 2 3.13 183,619,200 26.07 66,538,254 1:1 133,076,508

Allocation to QIBs

Allocation to QIBs has been done on a proportionate basis in consultation with the BSE. As per the SEBI Regulations, Mutual Funds and other QIBs were allocated the available shares (97,401,600 Equity Shares) on proportionate basis. The under subscribed portion of 277,598,400 Equity Shares have been spilled over to Non-Institutional Bidders.

Category Fls/Banks Flls TotalNo. of Shares 62270400 35131200 97401600

The IPO Committee of the Company at its meeting held on May 5,2011, has taken on record the basis of allocation of shares approved by the designated Stock Exchange viz., the BSE, Mumbai, of the Issue and has authorized the corporate action for the transfer of the shares to various successful applicants.

The CAN-cum-Refund Orders and allotment advice and/ or notices have been dispatched to the address of the investors as registered with the depositories on or prior to May 6,2011. In case the same is not received within ten days, investors may contact at the address given below. The Refund Orders have been over-printed with the bank account details as registered, if any, with the depositories. The Equity Shares allocated to successful applicants are being credited to their beneficiary accounts subject to validation of the account details with the depositories concerned.

Future Ventures India Ltd IPO Grading:

CARE has assigned an IPO Grade 3 to Future Ventures IPO. This means as per CARE, company has ‘Average Fundamentals’. CARE assigns IPO Grading on a scale 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals.

Determining the Capital Structure:

1. Nature of Business:The nature of business can have a strong effect on the pattern of capital structure. A business with fixed and regular income can safely rely on debentures and preference shares which necessitates regular payment of fixed interest and dividends. But if business is risky and its income is unstable, ordinary shares should be relied upon. Because it’s not compulsory to pay dividends on them regularly.

Future Ventures India Limited, a part of the Future Group, creates, builds, acquires and operates innovative and emerging businesses in India’s rapidly growing consumption-led sectors. In addition to allocating and providing capital, they create, operationally manage and strategically mentor the Business Ventures.

Hence, it’s clear that they are the ‘Venture Capitalists’ and since the business of venture capital is much risky and the income is not fixed and regular, they have decided to go for the equity and not for debt.

2. Money Market Conditions:

http://www.futuregroup.in/

During boom period the investors go in for equity shares with the expectation of high dividends. But in time of depression, they will look more to safety than income and will be willing to invest in debentures rather than in equity shares. Thus, ordinary shares should be issued during boom period, while debentures and preference shares should be issued in times of depression.

If we consider the time period before one month of the Future Venture IPO, i.e. from 21st

March to 25th April, the stock market was in a boom period. So, this can be considered as one reason for coming up with equity and not debt. Also the goodwill of the Future Group is very high. So, they must be confident about the subscription of IPO.

3. Capital Requirement:Decision about the type of securities to be issued should be taken in the context of overall capital requirement of the company. If a small amount of capital is needed, only one type of security such as equity shares can be issued. But if a large amount of capital is required, it will be necessary to issue different types of securities.

If we consider the recent era, where the companies are coming up with huge public offerings like for example, Coal India with Rs. 15,000 crore, Reliance Power with Rs. 11,700 crore, Power finance with Rs. 4,578 crore. And also the Future Group is a huge group and for Future Group IPO of Rs. 750 crores is not that much large for which they need to come up with equity and debt both. Also as we said that Future Venture is in the business of venture capital which is much risky business. So it’s better for them to come up only with equity.

4. Retaining Control:When the existing management wants to retain control in their hands, they will issue less of equity shares and raise more funds through preference shares and debentures. Since preference shares and debentures have no voting rights, more funds can be raised through their issue and at the same time control of the company can be retained by the existing management.

Here in case of Future Venture, the promoters are holding 33.13% shares, other companies are holding 40.76% shares, general public is holding 22.86% shares and the rest by others. So, here the management control is not in the hands of only promoters. Also the majority of the shares are held by the other companies. So, it’s clear that company doesn’t want to retain control in their hands only and that’s why they come up with the equity shares and not by the debts.

But one point which is to be considered here is that in other companies which are holding 40.76%, most of the companies are of the Future Group. So, actually the management control is in their hands.

5. Stability of Earnings:The decision about the type of securities to be issued should be taken in the context of earnings of the company. If earnings are regular and steady, preference shares and debentures can be issued.

As we already discussed in the very first point that Future Ventures India Limited, a part of the Future Group, creates, builds, acquires and operates innovative and emerging businesses in India’s rapidly growing consumption-led sectors. In addition to allocating and providing capital, they create, operationally manage and strategically mentor the Business Ventures.

Hence, it’s clear that they are the ‘Venture Capitalists’ and since the business of venture capital is much risky and the income is not fixed and regular, they have decided to go for the equity and not for debt.

6. Long Term Interest of the Company:Sometimes it happens that the type of security which seems appropriate from the view point of money market conditions, is not appropriate from the view point of the long term interest of the company. During depression, for instance, debentures can be easily issued, but looking to the nature of business, the company may not be in a position to bear the burden of interest payments. Under such circumstances, long term interest of the company should be given more importance.

Here the Future Venture in future may or may not be in a position to bear the burden of interest payment as they are in the business of venture capital. So, considering the long term interest of the company, it is better for them to go for the equity rather than debt.

7. Nature of Assets of the Company:If a company does not possess fixed assets of high value, and therefore it cannot mortgage its assets, it cannot issue debentures. Similarly, if the value of a company’s assets is subject to wide fluctuations, it will not be advisable to issue debentures. The company will have to rely on equity shares.

Here Future Venture have fixed assets of value of Rs. 16,12,959 at the end of the year 2010-11. Fixed assets consist of office equipments, computers, furniture & fixtures, vehicles and software. As the total amount of fixed assets is very small to be mortgaged, they should go for the equity rather than debt. Also the company’s assets are subject to wide fluctuations. In the last year, the fixed assets were worth Rs. 40,92,659 and the depreciation of Rs. 24,79,700 has been provided on them which is almost 60% of the total fixed assets which shows that the assets are subject to wide fluctuations. So, from this point of view also they should go for

http://www.futuregroup.in/

the equity rather than debt and that’s why they came up with an IPO of equity shares of Rs. 750 crore.

8. General Level of Interest Rates:The rates of the interest should be taken into account while deciding the types of securities to be issued. If interest rates are high, it is better to issue ordinary shares. If the interest rates are low, it is advisable to issue debentures.

As the RBI has increased the interest rates 8 times in the last year, the base rate has reached to its highest level of 7%. And if they want to come up with the issue of debt than they must have to pay higher interest than 7%. So, the interest rates are very high in the current times in India. So, if the Future Venture comes up with the debts than they must have to pay higher amount of interest rates. Also they are already in the process of making their profits positive. Hence, they should come up with the issue of equity shares and that’s why they came up with that.

9. Attitude of Investors:There is a diversity of attitudes among the investors. Some investors prefer safety of high income. To meet their needs, debentures and preference shares should be issued. Some investors prefer high income to safety. To meet their needs, equity shares should be issued. Thus, it is desirable to issue securities of different kinds to obtain subscriptions from people with different attitude and preferences. This will also ensure wide distribution of securities.

10. Taxation policy of the Government:When rates of tax on company’s profits are very high, they prefer to issue debentures, because debenture is regarded as a debt and hence interest on it is considered as deductible expenditure in the income tax law. Therefore by issuing debentures, they can reduce their tax liability and pay a high rate of dividend to the shareholders. If dividends are taxed, then also the companies prefer to raise funds through debentures rather than shares.

Tax reliefs are different for investors in new shares issued by VCTs and investors who

purchase second-hand shares, for example on the stock market, For second-hand shares, the

reliefs are

Exemption from income tax on dividends on ordinary shares in VCTs

Exemption from capital gains tax on disposal of shares in VCTs

For new shares, the same reliefs are available, and in addition

Income tax relief at the rate of 30% on the amount subscribed for the shares (on or after 6

April 2006). This relief is available on investments up to £200,000 in a tax year (£100,000

http://en.wikipedia.org/wiki/Capital_gains_tax#United_Kingdom

before 6 April 2006), if they are held for at least 5 years (3 years for shares issued before 6

April 2006).

For shares issued before 6 April 2004, capital gains tax deferral (that is, tax on the gains on

the disposal of other assets within 12 months before or after the investment could be

postponed until the VCT shares were disposed of)

Hence, there are many tax reliefs available for the investors in the venture capital firms.

So, it’s easy to attract investors by issuing equity shares and that must be one of the reason

of going through equity and not through debt.

11. Cost of Financing:The cost of financing differs from security to security. It is relatively high if finance is raised through the issue of equity shares. Because it necessitates advertisement on a large scale, payment of underwriting commission and brokerage etc. on the other hand, issue of debentures necessitates lower expenses as debentures are regarded as safety investment. The law also requires to pay comparatively low underwriting commission on debentures because maximum underwriting commission on debentures is 2.5% and on shares it is 5%.

This point is discussed in detail in other part of this project.

12. Future Plan:Capital plan of a company is not decided on the basis of present situation only but it is determined on the future plans of the company also. Thus authorized capital is kept to such a level that in future, if requirement arises, further capital can be raised.

FVIL seeks to create, build, acquire, invest in and operate innovative and emerging businesses in India’s consumption-led sectors, which we define as sectors whose growth and development will be determined primarily by the growing purchasing power of Indian consumers and their changing preferences, lifestyle, aspirations and spending habits. Within the consumption led sectors, they intend to focus primarily on opportunities in the following business segments: (i) Fashion, (ii) Food, (iii) FMCG and (iv) Rural Distribution.

They intend to exercise significant management control or influence in the Business Ventures in which they invest in addition to allocating and providing capital. As at March 2011, they have in their portfolio 13 Business Ventures of which 5 are subsidiaries. They seek to access opportunities at various stages of the enterprise growth cycle, from nascent to more mature businesses, with a view towards medium to long-term value creation for our shareholders.

Hence, it is clear from its future plans that they will need more and more funds for the investment. So, this is also one of the reason for going through the equity route. Also it is clear from the ‘Audit Report 2010-11’ that they have the Authorized capital of 500 crore shares and they have issued only 82.62 crore shares. They have created a large base for their investment and kept the Authorized capital high seeking the Future plans.

13. Different Types of Securities:Psychology of different investors is different. Some investors are satisfied with fixed income, but they want safety of their money. For such investors the company must issue debentures and preference shares. While some investors want high return for which they are ready to take risk. For such persons equity shares must be issued. Thus, if a company can issue different types of securities, it can make wide distribution of its securities. So that concentration of power in few hands is avoided.

Hence, we can say here that they are targeting the investors who are risk takers.

14. Legal Restrictions:The companies have to comply with legal provisions regarding the issue of different securities.

Recent Capital Structure & Shareholding Pattern

Ownership No. of shares % HoldingPromoter’s Holding

Indian Promoters 52,21,58,846 33.13Foreign Promoters - -

Non Promoter’s HoldingInstitutional Investors

Banks, fin. Ins. & Insurance 3,74,57,445 2.38FII’s 24,34,800 0.15

Sub Total 3,98,92,245 2.53Other Investors

Private Corporate Bodies 642408173 40.76NRI's/OCB's/Foreign Others 2287156 0.15

Others 9173645 0.58Sub Total 653868974 41.48

General Public 360323635 22.86Grand total 1576243700 100.00

References:

http://www.chittorgarh.com/ipo/ipo_alerts_detail.asp?a=1032&b=304

http://www.chittorgarh.com/ipo/ipo_detail.asp?a=304

http://www.chittorgarh.com/ipo/ipo_detail.asp?a=304

http://www.chittorgarh.com/ipo/ipo_alerts_detail.asp?a=1032&b=304

Future venture autosave (1)

Economy & Finance

Transcript of Future venture autosave (1)