Reliance takeover of Future Group’s retail business is a major consolidation in the Indian organised retail sector, with two of the top three players merging
RIL share price today jumped 2.6 per cent to Rs 2,172 apiece on BSE after the oil-to-telecom conglomerate announced the acquisition of the retail & wholesale business, and the logistics & warehousing business from Future Group in a mega transaction for Rs 24,713 crore. On the other hand, Future Retail share price hit 20 per cent upper circuit at Rs 162.30 apiece on BSE, taking the company’s total market capitalisation to Rs 8,539 crore. Among other Future Group companies stocks, Future Enterprises, Future Lifestyle Fashions, Future Consumer, Future Supply Chain Solutions and Future Market Networks hit their respective 5 per cent upper circuit after Kishore Biyani’s Future Group announced a major reorganisation of its above mentioned businesses into Future Enterprises Limited (FEL). “Reliance takeover of Future Group’s retail business is a major consolidation in the Indian organised retail sector, with two of the top three players merging,” said Credit Suisse.
The brokerage firm has maintained a neutral rating on Reliance Industries with a 12-month target price of Rs 1,930, a downside of nearly 9 per cent. Future Enterprises will subsequently sell by way of a slump sale the retail and wholesale business such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory to Reliance Retail and Fashion Lifestyle Limited (RRFLL). The brokerage firm further highlighted that this acquisition is negative for the Avenue Supermarts (DMart), as among the three main players in the grocery market, Avenue and Reliance had strong balance sheets, while Future Retail was highly leveraged. “The weak competitor being acquired by a stronger one is negative for Avenue which now becomes a distant No. 2 in a largely two-player market,” it added.
Research and brokerage firm Motilal Oswal Financial Services is bullish on RIL stock with a price target of Rs 2,250, an upside of 6 per cent from the previous close. According to the brokerage firm, the deal holds very high strategic interest to RIL as it would aid in three ways: a) enhance footprint, b) offer a good legacy franchise, and c) help build competitive strength.
In this deal, Future Group will merge its various listed companies into Future Enterprises Limited (FEL). Shareholders of Future Consumer will get 9 shares of FEL for every 10 shares held while shareholders of Future Lifestyle Fashions will get 116 shares of FEL for every 10 shares held. Similarly, Future Retail shareholders will get 101 shares of FEL for every 10 shares held and shareholders of Future Supply Chain will get 131 shares of FEL for every 10 shares held. While Future Market Networks shareholders will get 18 shares of FEL for every 10 shares held.