Billionaire Mukesh Ambani’s Reliance Industries Ltd on Saturday announced the acquisition of Kishore Biyani's ‘crown jewel’ -- Future Group businesses for Rs 24,713 crore -- to add to its fast-expanding retail business and bolster e-commerce to take on the competition from the likes of Amazon among others. The Reliance takeover includes the wholesale, logistics and warehousing business of the Future Group.
Post Reliance Industries-Future Group deal, Mukesh Ambani's Reliance Retail Ventures (RRVL) will hold 13.14% stake in Kishore Biyani's Future Enterprises Ltd and will take over the debt of ₹12,500 crore.
With over Rs 15,000 crore in debt, the Kishore Biyani-founded Future Group has been seeking funding support for several months. Future Retail operates 1,550 stores. Its flagship brands are BigBazaar, FBB and Foodhall, Easyday, Heritage Fresh and WHSmith. Future Lifestyle Fashion operates 354 stores. The RIL-Future Group deal will add over 1,700 retail stores to Reliance’s footprint of 10,900 stores across groceries, electronics and other formats.
What Reliance Retail-Future Group deal means and impact it holds on retail, wholesale sector?
"With Future Retail's takeover Reliance Retail now consolidated its position in Retail Space. Now Reliance Retail has entered into Upmarket, Metro and Malls. Future Retail has a good presence in these areas. Reliance Retail is now in a formidable position to take on the likes of Amazon or Flipkart," says Aasif Iqbal, Head-Research Escort Securities Ltd. "With this retail is now happening space, action could be seen in D-Mart and Spencer stocks too."
When asked how this deal will benefit Future Group and RIL's shareholders, Iqbal said: "Future Group lender and shareholder got respite with this deal. Debt on Future Group will go off and minority shareholder will benefit as a strong parent means strong profitability."
Through the deal, Reliance will acquire Future Retail that owns the BigBazaar that sells everything from groceries to cosmetics and apparel, and Future Lifestyle Fashions Ltd that operates fashion discount chain Brand Factory. The Logistics & Warehousing Undertaking is being transferred to RRVL.
“The acquisition of the retail, wholesale and supply chain business of the Future Group complements and makes a strong strategic fit into Reliance’s retail business. This will help Reliance retail to accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times,” said Reliance Retail Ventures Ltd in its official statement.
Investment from Reliance would help Future's founder Kishore Biyani pare debt. The deal may, however, risk Future's tie-up with the US online shopping giant Amazon. Speaking on how this deal will help boost the Indian market and economy, Iqbal said: "Indian Retail sector is in the consolidation phase. Also organised sector share will increase."
Stretching on the road ahead for 'Future Group' after Reliance's rescue move, Iqbal said, "Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks will merge into FEL. After this FEL will sell retail and wholesale business along with that of logistics and warehousing business to RRVL( Reliance Retail VentureLtd.). After this transaction, FEL will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills."
What investors should do?
Should buy/hold/sell RIL and Future Group shares? Strategy?
Iqbal said, "Hold Future Group share. Good upside is expected. Swap ratio is favourable. Hold and Buy more of RIL shares. RIL Has much of steam left and many more new things will unfold going forward. RIL Target - Rs 3200."
RRFLL will also invest Rs 1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 per cent of post-merger equity and Rs 400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75 per cent of the issue price, will result in RRFLL acquiring further 7.05 per cent of FEL.
(Additional inputs from Sarabjeet Kaur)