Reliance Retail Ventures (RRVL), a unit of Reliance Industries (RIL), on Saturday, announced the acquiring of retail & wholesale business and the logistics & warehousing business form the Kishor Biyani-promoted Future Group for a lump sum amount of Rs 24,173 crore.
This move explains the company’s effort to transition away from its energy business towards a consumer-focused retail and telecom company, as stated by the analysts. Reliance is planning to capture the retail segment of the market through Reliance Retail, as stated by the company, the acquisition is being done as part of the scheme in which Future Group is merging certain companies carrying on the aforesaid businesses into Future Enterprises (FEL).
RIL stated that 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.
“The Future Group was under pressure due to piling debt and servicing issues, and the stake sale to RIL was best fit for them as they were compelled to sell assets. RIL had a war chest after the mega fund raising. For RIL, they now need not build the wholesale, logistics and warehousing unit,” said Hemang Jani, Head – equity strategy, broking & distribution at Motilal Oswal Financial Services
Future Group’s net debt burden had piled up to around Rs 12,989 crore with the entire promoter holding pledged with lenders.
On August 24, the group managed to avert a default by making a payment of Rs 100 crore or $14 million on its foreign bonds.
“The key businesses for RIL are now telecom and retail, and energy just remains a legacy business. This also means oil & gas business will only contribute 20 per cent to the SOTP (sum of the parts) valuation,” said Jani, adding that RIL shares may see an uptick on Monday.
Ajay Bodke, CEO-PMS, Prabhudas Lilladher, said, “RIL is marching confidently towards its goal to emerge as a consumer-focused play, with Jio’s digital platform and now even stronger retail business.”
“The market had more or less discounted the deal, and broad contours were also known. It is a rescue for the highly indebted Future Group and its promoters,” he adde
Bodke said the market is expecting further induction of strategic and/or financial partners in the retail business.
“It will be no surprise if we see unlocking of value in the retail business as well,” he said.
He pointed out that the deal adds to Reliance Retail’s offline presence and they get access to a wide network, logistics and warehousing business, and is a good fit.
“It will be interesting to find out what happened to Amazon’s minority stake in one of the Future Group companies,” he added.
The deal will help Reliance Retail accelerate its support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times, the firm said in a statement.
“We hope to continue the growth momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas as well as large consumer brands,” Isha Ambani, Director, Reliance Retail Ventures, said.
