Shares of Kishore Biyani-led Future Retail Ltd surged by more than 2.5% on Friday morning, after the company announced the much awaited acquisition of HyperCity for Rs 655 crore, in a move to further consolidate its footprint in western India. K Raheja Group’s listed entity, Shoppers Stop also surged by more than 3% as investors cheered the move. Future Retail Ltd shares were trading at Rs 543, while Shoppers Stop shares were trading at Rs 519 on Friday morning.
According to stock exchange finings, the stock-and-cash deal will be completed in three to five months. Future Retail will allot more than 9.3 million shares to HyperCity Retail’s shareholders at Rs 535 per share on a preferential basis, accounting for Rs 500 crore. The remaining Rs 155 crore will be paid in cash, according to Future Retail’s exchange filing.
HyperCity operates 19 stores over a 1.34 million square feet area, according to an investor presentation by Shoppers Stop for the quarter ended June 2017. The company, which hasn’t posted even a rupee of profit so far,and made losses worth Rs 84.73 crore in FY16-17 on revenues of Rs1,154.57 crore, as per its annual report data.
The move may also help HyperCity to reduce the burgeoning Rs 400 crore debt pile, as against an equity of Rs 11.45 crore, as the company seeks to transfer a part of debt to Future Group.
From Future Group’s point of view, HyperCity may be positioned between its existing Big Bazaar departmental store network and Foodhall, a premium upscale gourmet store. However, with other brands under Future Retail ltd such as Easyday, Food Bazaar, KB’s Conveniently Yours, fbb, HomeTown and Ezone, it remains to be seen where exactly HyperCity fits into Future Group’s portfolio.
According to a report by Edelweiss released in the end of September, the Hypercity sale will be positive for Shoppers stop. “Consequently we expect SS to sharpen focus on its departmental business and also utilise the sale proceeds to pare debt, ” the report said. “This is the fifth acquisition for Future Retail, so it is clearly consolidating, the only other competitors doing well are Reliance Retail and D-Mart, other players are mostly downsizing,” Abneesh Roy, senior vice president at Edelweiss Financial Services said in the same report.
This is the second deal in less than a month for K Raheja Group. In late September, the American e-commerce giant Amazon.com bought a 5% stake in Shoppers Stop. Axis Capital maintained a buy call on Shoppers Stop, and revised the target price to Rs 550, as the research and brokerage firm believes that the 5% stake sale to Amazon.com will reduce debt by more than Rs 180 crore. The shares have returned more than 70% in the year so far.