INDIA. Flemingo Travel Retail has filed a draft proposal with the Securities and Exchange Board of India (SEBI) for a forthcoming initial public offering (IPO), Chief Executive Atul Ahuja has confirmed to The Moodie Davitt Report.
The company intends to list shares on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE).
The Draft Red Herring Prospectus* (DRHP) filed on 15 February (seen by The Moodie Davitt Report) proposes raising funds of around INR2,423 crore (around US$375 million). The shares carry a face value of INR10 each in the draft document (though this will not necessarily reflect the final Offer Price, which is yet to be published).
The company plans to issue both new shares and 1,129,500 further shares of subsidiary Flemingo Duty Free Shop Mumbai Pvt. Ltd. The offer will include up to 150,000 equity shares to be made available to employees.
Promoters of the proposed IPO are listed as Atul Ahuja and Flemingo International (BVI) Ltd.
Flemingo Travel Retail was originally incorporated as DFS India Private Limited in Mumbai, on 15 December 2007. The name was subsequently changed to Flemingo Travel Retail Private Limited following a shareholders’ resolution on 16 November, 2017. It was then converted into a public limited company at an extraordinary general meeting held on 1 December 2017, with the IPO planned.
The company said it proposes to use the proceeds from the fresh issue of shares towards a restructure and other activities. As part of a wider consolidation of the group, this will include acquisition of 100% of the issued and paid-up share capital of Flemingo Dutyfree Shop Private Limited (Flemingo India) and acquisition of 100% of the equity interest in Flemingo UK (holding company of Harding Retail) from Flemingo International.
In its prospectus, Flemingo underlined the key role of the Indian sub-continent business on its activities. Just over 35% of the Flemingo group’s 2017 revenues came from India and Sri Lanka. Flemingo noted: “As of 30 September 2017, we operated 28 core duty free stores and 16 speciality stores in Indian airports and eight core duty free stores in eight seaports in India. We also operated two core duty free stores in Colombo Airport.” It confirmed that Mumbai Duty Free is the biggest contributor by location to the business. Notably, in an independent assessment dated 7 February, valuer Duff & Phelps estimated that the estimated equity fair value of Flemingo India on a consolidated basis was US$260 million.
Spend per passenger in Flemingo’s Indian stores hit INR301 (US$4.70) in the six months ended 30 September 2017, compared with INR289 (US$4.51) in the same period in 2016.
As of September 30, 2017, the company’s concession contracts with airports and other operators in India had an average remaining concession life of 8.36 years.
Group performance
In fiscal years 2015 to 2017, on a proforma consolidated basis, Flemingo as a group reported revenues of INR24,069.08 million (US$375.7 million), INR35,713.83 million (US$557.5 million) and INR38.95 million (US$608 million).
In fiscal years 2015, 2016 and 2017 and the six months ended 30 September 2017, on an unconsolidated basis, Flemingo incurred losses after tax of INR1,633.68 million (US$25.5 million), INR1,295.45 million (US$20.2 million), INR1,140.09 million (US$17.8 million) and INR457.22 million (US$7.1 million), respectively, primarily due to the impact of concession fees.
As of September 30, 2017, Flemingo International operated 308 stores through 156 concessions worldwide. It noted that 55% of its revenues came from emerging markets in FY2017.
Flemingo noted its strategy to capitalise on the growth of the India/Sri Lanka business, build its cruise retail capabilities, enhance momentum in Europe (including through inflight & ferry retail and F&B) and expand through acquisitions and new concessions.
Citing risk factors associated with the travel retail business in general, the company highlighted operational losses, safety concerns or unfavourable changes in regulations. Crucially, it noted its plan to exit its investment in Chacalli-De Decker as it unwinds its diplomatic business in Europe.
Flemingo said: “In the year ended December 31, 2015, based on our assessment of our performance in various regions and our long term strategy, we decided to exit our operations in the LATAM region (Brazil, Paraguay, Costa Rica, Grenada and St. Maarten) as the economic changes in this region had become commercially unviable for our operations.
“Further, we strategically discontinued our convenience and diplomatic business in some African and other countries due to unviable financial condition and increasing difficulties in applying our compliance benchmarks resulting from the size and cultural barriers of the African region.
“Pursuant to this decision, we closed down our operations in the LATAM region, convenience business in Malaysia and Indonesia, and diplomatic business in Dubai. We have recently divested from operations in Ghana and South Africa. We are also in the process of divesting from our diplomatic business in Europe which is operated through Chacalli and this business is proposed to be transferred to a third party before the completion of the Offer.”
Outlining its most important categories for sales, Flemingo noted that in fiscal 2017, liquor accounted for just over 36% of revenues, with tobacco at just over 17%, fashion, watches & jewellery at just over 19%
*A red herring prospectus, as a first or preliminary prospectus, is a document submitted by a company (issuer) as part of a public offering to potential investors. It does not include complete particulars, such as the price of the investment opportunity offered. Investors may however indicate interest in the offering based on the information contained within the preliminary prospectus. This interest can later be converted to purchasing orders at the buyer’s discretion, once registration is complete.
