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Inside Reliance Future Group Deal: What Do Reliance Industries and Future Group Stand to Gain?

Sep 1, 2020 11:07 AM 3 min read
Editorial

We have an inside joke at TRANSFIN. Where we refer to Reliance as India’s largest and fastest growing unicorn. 

So what does India’s largest retail chain do to grow further?  

It’s quite simple actually...acquire India’s largest bricks-and-mortar retailer. 

On Saturday, Reliance Retail (a subsidiary of Reliance Industries) said it has reached an agreement with Future Group (known for its Big Bazaar and Pantaloons chains) to acquire the latter’s retail and wholesaler business, and its logistics and warehousing business for $3.4bn, including debt. 

Today, we have a look at who stands to gain what from this deal.

 

Reliance Retail

India’s retail sector is estimated to balloon to $1.3trn by 2025, up from $700bn last year, as per consultancy firm BCG and local trade group Retailers’ Association India. 

And there was no chance on earth that Reliance would miss out on this golden prospect. 

Reliance had set its eyes on the retail sector last year when it launched JioMart. The ecommerce platform began its trials in select suburbs of Mumbai late last year, and now has expanded to more than 200 cities and towns across India.

Facebook, which invested $5.7bn in Jio Platforms earlier this year, said that the company will explore ways to work with Reliance to digitise India’s 60m mom and pop stores as well as other small and medium-sized businesses.

What was missing, and perhaps the largest chunk of the retail sector in India was the bricks-and-mortar retailer segment. 

Quick Fact: Ecommerce still accounts for merely 3% of all retail sales in India. 

And Future Retail was the obvious option, considering its expansive brand presence and loyalty across the country since the 1980s. 

Acquisition of Future Group’s retail assets and its back-end infrastructure will give Reliance control of about one-third of the bricks-and-mortar stores of India’s otherwise fragmented modern retail sector. Future Retail today serves millions of customers  in more than 420 cities through more than 1,800 stores across Future Group's Big Bazaar, FBB, Easyday, Central, Foodhall formats.

FYI: Ecommerce giant Amazon also has five per cent stake in Future Retail. 

While Reliance will get to leverage on Future Retail’s business ecosystem, it is also likely that in the near future, they would aim to digitise Future Retail’s sprawling offline presence. 

Needless to say, the deal will put Reliance Retail in a better position to compete with the likes of Amazon and Walmart-Flipkart. 

Moreover, Reliance Retail’s ambitions to conquer the farm-to-fork supply chain market with its  data analytics app JioKrishi, which aims to help farmers get higher yields, will get a boost with Future Group’s logistics and warehousing assets.

 

Inside Reliance Future Group Deal: What Do Reliance Industries and Future Group Stand to Gain? 

Future Retail

The deal has given Future Retail a fresh lease of life, which was reeling under its rising debt, which stood at ₹12,778cr ($1.8bn) as of September 2019. The infusion of $3.4bn will help the Group pare debt and strengthen its remaining businesses.  

“Post this exercise, Future Enterprises Ltd (FEL) will emerge strong with businesses in manufacturing and distribution of FMCG products and integrated fashion sourcing and merchandising. These businesses will further benefit from supply agreement with Reliance Retail and Fashion Lifestyle Limited (RRFLL)...The transaction will help FEL to expand with a focussed business model and a stronger balance sheet,” Future Group said, in its official statement. 

Future retail’s share price was up c. 20% at ₹162.35 at close of play. 

Mukesh Ambani’s intent to reduce dependence on revenue from RIL’s traditional businesses of petrochemicals and oil refining has been quite evident from the company’s recent dealings. 

Having raised a storm in the telecom sector in India, RIL is now eying the country’s brick-and-mortar retail and e-commerce space - yet another step in its mission to transform into a consumer-services giant. 

FIN.

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