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Mukesh Ambani’s Reliance-Kishore Biyani’s Future Group deal: What the future holds for India’s retail sector

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Post Reliance Industries-Future Group deal, Mukesh Ambani’s Reliance Retail Ventures (RRVL) will maintain 13.14% stake in Kishore Biyani’s Future Enterprises Ltd and can take over the debt of ₹12,500 crore.

 

Billionaire Mukesh Ambani’s Reliance Industries Ltd on Saturday introduced the acquisition of Kishore Biyani’s ‘crown jewel’ — Future Group companies for Rs 24,713 crore — so as to add to its fast-expanding retail enterprise and bolster e-commerce to tackle the competitors from the likes of Amazon amongst others. The Reliance takeover consists of the wholesale, logistics and warehousing enterprise of the Future Group.

 
Post Reliance Industries-Future Group deal, Mukesh Ambani’s Reliance Retail Ventures (RRVL) will maintain 13.14% stake in Kishore Biyani’s Future Enterprises Ltd and can take over the debt of ₹12,500 crore.
 
With over Rs 15,000 crore in debt, the Kishore Biyani-founded Future Group has been searching for funding help for a number of months. Future Retail operates 1,550 shops. Its flagship manufacturers are BigBazaar, FBB and Foodhall, Easyday, Heritage Fresh and WHSmith. Future Lifestyle Fashion operates 354 shops. The RIL-Future Group deal will add over 1,700 retail shops to Reliance’s footprint of 10,900 shops throughout groceries, electronics and different codecs.

What Reliance Retail-Future Group deal means and affect 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 requested how this deal will profit Future Group and RIL’s shareholders, Iqbal stated: “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 purchase Future Retail that owns the BigBazaar that sells every part from groceries to cosmetics and attire, and Future Lifestyle Fashions Ltd that operates style low cost 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,” stated Reliance Retail Ventures Ltd in its official assertion.
 
Investment from Reliance would assist Future’s founder Kishore Biyani pare debt. The deal could, nevertheless, danger Future’s tie-up with the US on-line buying large Amazon. Speaking on how this deal will assist enhance the Indian market and financial system, Iqbal stated: “Indian Retail sector is in the consolidation phase. Also organised sector share will increase.”
 
Stretching on the highway forward for ‘Future Group’ after Reliance’s rescue transfer, Iqbal stated, “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 buyers ought to do?

Should purchase/maintain/promote RIL and Future Group shares? Strategy?
 
Iqbal stated, “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 may even make investments Rs 1,200 crore in the preferential problem of fairness shares of FEL to amass 6.09 per cent of post-merger fairness and Rs 400 crore in a preferential problem of fairness warrants which, upon conversion and cost of steadiness 75 per cent of the problem worth, will lead to RRFLL buying additional 7.05 per cent of FEL.

(Additional inputs from Sarabjeet Kaur)

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