Future Enterprises board meets tomorrow to seal RIL deal | Economic Times

MUMBAI: The board of Future Enterprises will meet on Saturday to finalise the sale of the group’s retail business to Reliance Retail. The all-cash deal will see the Mukesh Ambani company take on Future Group’s debt and liabilities, and pick up a minority stake in the latter’s FMCG arm.According to the terms of the deal, valued at about Rs 29,000-30,000 crore, Future Group will merge five listed units across grocery, apparel, supply chain and the consumer business into Future Enterprises Ltd (FEL), which currently houses the group’s retail back-end infrastructure. FEL will then hive off all retail assets and sell them to RIL as a single unit, according to two people familiar with the matter.“Reliance will pay about Rs 13,000 crore to Future Group for clearing debt, another Rs 7,000 crore for its liabilities (including payments to landlords and vendors), and Rs 6,000-7,000 crore to the promoter group,” said one of the persons. In addition, Reliance will pick up 14-16% stake in Future Enterprises for 3,000 crore through a preferential allotment by the latter.Future Enterprises will house the residual businesses, primarily the FMCG products of Future Consumer, textile mills and the insurance arm.FEL will have a long-term supply agreement with Reliance Retail for apparel and groceries. Reliance Industries and Future Group did not respond to queries till press time Thursday. 77795662Leg Up for Rel Retail in Groceries, ApparelShares of the flagship Future Retail rose 10% on the BSE on Thursday while Future Consumer, Future Enterprise and Future Lifestyle shares surged 5% each.Founded in 1987 as the erstwhile Manz Wear and later Pantaloon Retail, the Future Group used aggressive pricing to become a retail juggernaut over the past two decades, but is now burdened with net debt of Rs 12,989 crore. Almost the entire shareholding of the promoters is pledged with lenders.For Reliance Industries, which clocked revenues of Rs 1.63 lakh crore in the retail business last fiscal, the deal could mean a significant share in the groceries and apparel segments, where it hasn’t made a dent, as it has in electronics. “This will make Reliance the market leader by a long mile, putting pressure on rivals. In telecom and digital, it is hard to displace the market leader, but in retail, higher store count doesn’t guarantee success. Retail in India is still very fragmented or local, and having more successful stores matter instead of an absolute number of outlets,” said Devangshu Dutta, founder of Third Eyesight, a strategy consulting firm.According to Euromonitor, India’s retail market size is about $635 billion (Rs 42 lakh crore) that is split 59:41 between grocery and other categories such as apparel, footwear and electronics.Wide ControlThe acquisition could give Reliance Retail sway over a network of nearly 1,800 stores and bring in Rs 26,000 crore in additional sales that will help RIL control more than a third of India’s organised retail market.At present, Reliance Retail’s store network within the pure-play retail business is skewed towards the consumer electronics segment that accounts for nearly three-fourths of its overall store count and generates a fourth of the revenues at Rs 45,000 crore.In comparison, the grocery segment with 800 stores makes up just 7% of its store network but accounts for a fifth of its sales at Rs 34,600 crore, indicating the potential clout that RIL could achieve by adding the grocery stores of Future Retail.Fashion and lifestyle retail stores account for 20% of all Reliance Retail outlets but contribute 8% of overall sales at Rs 13,500 crore. Future Lifestyle manages about 400 stores across formats such as Central, Brand Factory and nearly three dozen apparel brands such as Lee Cooper, Clarks and Indigo Nation.