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Published on: Sept. 8, 2020, 3:40 p.m.
Future belongs to Reliance
  • Big Bazaar now in Reliance's shopping cart

By Ritwik Sinha. Consulting Editor, Business India

The two major deals in the Indian retail business (Walmart taking over Flipkart in 2018 and now Reliance Retail Ventures acquiring the main businesses of Kishore Biyani’s Future Group) have a common string. Both of them emanated from a serious existential crisis faced by the acquired entity which happened to be a leading player in its respective domain for a long time. And these deals probably happened just in the nick of time. Analysts say that Flipkart, with its mounting losses two years back, would have found it difficult to sustain itself and carry the valuation game any further if Walmart had not extended its helping hand. Amazon, with its financial might, had begun to increase its market share with Jeff Bezos making his intentions clear that he would spare no effort and investment in making India a happening turf for him. And a similar pattern has been noticed in the case of the Future Group where rising debts and inevitable credit downrating brought the company close to a breaking point. 

There is no gainsaying the fact that Reliance’s entry has saved the day for Biyani and his company, with the bankers getting jittery over the increasing debt of the listed companies of the group which had stood close to Rs13,000 crore at the end of September, 2019.

In precise terms, the deal entails Reliance spending Rs24,713 crore to buy out four major divisions of Biyani’s empire – retail, wholesale, logistics and warehousing assets. Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries, and its divisions, will be acquiring different arms. For instance, Future’s retail and wholesale businesses will be added to the profile of Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL. And the logistics and warehousing arms of the Future Group will be directly transferred to RRVL. In a cumulative sense, the  deal ensures some of the popular retail brands created by Biyani like Big Bazaar, FBB, Easyday, and Central stay alive.

  • In a cumulative sense, the deal ensures some of the popular retail brands created by Biyani like Big Bazaar, FBB, Easyday, and Central stay alive

The timing couldn’t have been more opportune for Reliance with Mukesh Ambani recently garnering support from global giants like Google and Facebook for his own larger technology play, JioMart, which has been positioned at the fulcrum of Reliance’s retail drive.

As analysts point out, the deal has bolstered Reliance Retail’s positioning significantly in several ways. It has got control of a positive cash flow business (estimated close to Rs30,000 crore). More importantly, the deal takes Reliance Retail miles ahead of any competition when it comes to grocery strength – the largest vertical of the modern and organised vertical in the country estimated at $800 billion annual retail sales.

The two companies have been the leading entities in the space and now their combined might takes the Reliance grocery business to the point where all other entities will be overshadowed. Going by the market buzz following the takeover announcement of Future Group, DMart will be the only competition worth mentioning for Reliance Retail.   

It remains a mystery to many why someone like Biyani who clearly emerged as a pioneer in the Indian retail business simply failed to look beyond the capital intensive, brick and mortar model of retail business. Something which is now strongly believed to have pushed him on to the debt path, finally forcing him to exit the game.

And there is another dimension which seems to be equally baffling. While Reliance has chosen to make the most of the worst possible spell in scaling up its retail business, why have other conglomerates like Tata, Aditya Birla or RPG Group (with specific retail businesses) shied away from taking a shot at buying a stressed Future and enhance their footprint? Are they resigned to the fact that strength picked up by Reliance Retail in recent years is invincible and can’t be challenged? This again is a major open-ended question as of now.

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