The board of the Kishore Biyani-led Future Retail on Thursday approved the acquisition of Shoppers Stop subsidiary HyperCity Retail for `655 crore in a cash-cum-share deal.
The board of the Kishore Biyani-led Future Retail on Thursday approved the acquisition of Shoppers Stop subsidiary HyperCity Retail for `655 crore in a cash-cum-share deal. Currently, Shoppers Stop owns a 51% stake in HyperCity, a premium grocery chain of 19 hypermarts, while K Raheja Corp holds the remaining 49%. According to Future Group joint managing director Rakesh Biyani, of HyperCity’s total debt of Rs 546 crore, Rs 250 crore will be transferred to Future Retail as part of the deal.
According to a Future Retail statement, shares worth Rs 500 crore of Future Retail would be allotted to the sellers (HyperCity) while the balance Rs 155 crore would be in cash. After this transaction, HyperCity Retail would become a wholly-owned subsidiary of Future Retail.
The statement said that Future Retail’s board has approved to allot 93,10,987 fully paid-up equity shares of `2 each collectively to the sellers at a premium of Rs 535 per share on a preferential basis, which would aggregate to Rs 500 crore.
HyperCity is yet to turn a profit. Its accumulated loss as of March 2017 was Rs 711.77 crore. The loss-making hypermarket chain opened its first store in 2006. The stores range from 20,000 sq ft to as much as 50,000 sq ft and are mostly located at marquee locations in Mumbai, Bhopal, Hyderabad, Bengaluru, Amritsar, Ludhiana, Delhi-NCR, Pune, Jaipur and Ahmedabad.
Failing to find a buyer for some time, the company last year was looking to sell around 10-15% stake and raise around Rs 150 crore. However, the company finally managed to strike a deal with Future Retail, experts said.
Analysts and consultants said that although HyperCity continues to remain loss-making, with the acquisition by Future Retail, there is a possibility of turning it around as the latter has an efficient back-end for its grocery business.
Pinaki Ranjan Mishra, partner and national leader, retail and consumer products, EY, said, “This acquisition would help Future Retail to upgrade itself from just catering to value retailing by Big Bazaar to a more premium grocery retail chain. Also, HyperCity is located at marquee locations in premium malls.”
Mishra said that Biyani is also focusing on expanding the company’s consumer goods business and HyperCity could be a platform to launch more premium products. HyperCity posted sales of Rs 1,077 crore in FY17. The company made losses worth Rs 84.73 crore in FY16-17 on revenues of Rs 1,154.57 crore, as per annual report data.
In the 2016-17 annual report, the company said that while HyperCity continues to take steps to revamp its business operations (including store right-sizing, and brand positioning), the gestation period to achieve the desired level of turnaround is taking longer than previously envisaged.
In Q1FY18, Shoppers Stop’s net loss narrowed to Rs 3.45 crore compared to a net loss of Rs 13.56 crore reported in Q1FY17. Shoppers Stop witnessed like-to-like sales growth of 19.8% in Q1FY18 while like-to-like sales growth of HyperCity in Q1FY18 stood at 2.4%. Ebitda in the quarter was up 22% to Rs 32 crore while the margin was 3.1%, similar to that in Q1FY17.
In November 2016, Future Retail bought the retail business of Hyderabad-based Heritage Foods, promoted by the family members of Andhra Pradesh chief minister N Chandrababu Naidu, in an all-stock deal. The company acquired Heritage Fresh’s 136 retail stores in Hyderabad, Chennai and Bengaluru.
In May 2015, the Future Group announced that it had agreed to merge its retail business with rival Bharti Retail in an all-stock deal worth Rs 750 crore to create one of the biggest supermarket chains with `15,000 crore turnover. Future Retail acquired Easy Day after merger with Bharti Retail in May 2015.
In November 2014, Future Group company Future Consumer Enterprise acquired south-focused convenience store chain Nilgiris for nearly `300 crore. Future Retail’s flagship brands include Big Bazaar, Fashion at Big Bazaar, and Food Bazaar.
Big Bazaar has 235 stores in India which have been undergoing an upgrade from a go-to destination for discounts to a lifestyle departmental store.