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Future Retail: A story from riches to rags in 2022

Future Retail: A story from riches to rags in 2022

Future Retail was formerly a global leader in the retail area, but inadequate management led to the company’s disastrous sale.

If you’ve been paying attention to the news, you’ve probably heard about the fight between Reliance and Amazon over Future Retail. Kishore Biyani’s Future Retail has been purchased by Reliance Retail. The current state of Future Retail’s business raises several questions, including:

“Why was Future Retail sold?”

“What is the dispute between Reliance and Amazon over Future Retail?”

“What led to Future Retail’s final demise?”

Future Retail: After stalling Ambani-Biyani deal, transfer of Future Retail  stake also stayed by SIAC - The Economic TimesWith outlets like Big Bazaar Central, Brand Factory, and others, Future Retail has become a significant participant in the Indian retail business. You’ve probably all been to these stores at some point. However, the company’s commercial operations have been having troubles since February 2020, and the Future Retail share price has decreased from Rs 377.10 on February 13, 2020, to Rs 77.60 today (on February 3 2021).

The company could not repay its debts, and Kishore Biyani (the future group’s founder and CEO) was forced to sell the company to Reliance Retail. However, Amazon is causing complications with this contract with Reliance.

What caused that to happen? Let’s take a look at the Future Retail journey to see what led to its eventual demise.

The journey of Future Retail

How Kishore started his journey:

Kishore Biyani, a graduate of Mumbai’s H.R. College and a business family member, wants to start something fresh. He didn’t care about his family’s business. In 1987, he founded Manz Wear, a garment manufacturing company that sold men’s clothing. After the liberalization, he established brands like BARE and John Miller to conquer the market. Biyani first entered the retail business in 1997, when she opened the first Pantaloons store in Kolkata.

In the Indian market, the brands and outlets were doing exceptionally well. Biyani was able to exploit the benefits of the 1991 deregulation and so gain market share. In 2001, he expanded his firm by launching Big Bazaar, which has proven to be his most successful venture. A chain of Big Bazaar outlets has opened across the country.

Big Bazaar was emulating the old crowded and chaotic markets that Indians were accustomed to. It was delivering a supermarket-style bazaar in a western setting. Customers in India flocked to these stores in droves, and over the next six years, more than a hundred new Big Bazaar locations emerged to consolidate the retail sector.

Biyani planned to open a number of outlets, including supermarkets, electronics stores, furniture stores, clothes stores, and multi-brand retail chains. He was also buying up a number of neighbourhood food stores. Biyani also brought in more labels and brands, including FBB, Central, and Hometown. Many stores were also hived off as a result of the company’s massive expansion, which put a strain on the company’s finances.

Following that, Future Retail was forced to operate under the UPA government’s tenure. The United Progressive Alliance (UPA) government was eager to open the retail market to international businesses such as Walmart. Biyani was initially opposed, but the global players eventually stepped in.

In 2007, Biyani expanded into Future Generali Indian Insurance, which proved to be costly in the long run.

In 2008, the corporation was able to weather the global economic crisis by spending and borrowing excessively in order to maintain market share. Later, though, Biyani borrowed too much money to stay in the market.

As of September 30, 2019, the company’s debt had escalated to Rs 12,778 crore, and all of the promoters’ shares had been committed to the lenders.

During the COVID-19 outbreak, the corporation was targeted and had to pay Rs 100 crore in interest on its international bonds by August 24, 2020, to escape default.

Reliance Retail (a subsidiary of Reliance Industries) announced on August 29, 2020, that it is purchasing the Future Group’s retail and wholesale businesses, as well as logistics and warehousing, for Rs 24,713 crores.

Fall of Kishore Biyani and his company:

Local vs foreign: How a creditor revolt scuttled RIL's Future Retail deal |  Business Standard NewsPlenty of Diversification:

The Future Group and Kishore Biyani’s main issue was too much diversification. The company’s rapid expansion and acquisition of new retail assets resulted in debt, which resulted in a rating fall.

Future Group entered the insurance market in 2007 with the launch of Future Generali Indian Insurance, a joint venture with Italian insurer Generali. Future Capital, which provides financial services, wealth management services, equity broking, and real estate broking, was also established. The Future Group then ventured into the real estate market.

Biyani had also squandered his funds by investing in Bollywood. Future Group spent roughly Rs. 26 crores on two films, ‘Na Tum Jaano Hum’ in 2002 and ‘Chura Liya Hai Tumne’ in 2003, both of which were commercial flops.

Between 2014 and 2017, Future Retail acquired a number of national and regional retail firms, particularly those selling groceries. The transaction was made with the goal of connecting with customers through an extensive network of small businesses.

What they didn’t realize was how difficult it was to diversify a retail business successfully.

Never-ending restructuring:

Biyani was compelled to restructure the Future Group by de-merging the non-retail businesses due to massive expansion and diversification. From the original 24, only four forms were kept: Pantaloons, Central, Big Bazaar, and Food Bazaar.

Even after the de-merge, however, debt issues continued to mount. The situation became more severe in 2012 when the core retail sector borrowed Rs. 5,800 crore, and the net debt-to-equity ratio reached 1.8x. The debt of Rs.5800 crore represented roughly 55% of the company’s EBITDA in FY2012.

Biyani sold his first retail success, Pantaloons, to K.M. Birla’s Aditya Birla Group for Rs 1600 crore in 2012 to relieve his financial burden.

Kishore Biyani faced head-on competition from Amazon Retail, Amazon Pantry, and the funding boost Flipkart received after Walmart bought a stake in the company.

To deal with the direct threat of online platforms, Future Group’s promoters created an e-commerce marketplace called Big Bazar Direct, but they didn’t get very far. Meanwhile, Reliance Retail, Spencer’s, and Tata Star Bazaar had expanded their retail franchises, further complicating the Future Group’s situation by diminishing its market share.

The virus attacks:

5 trends defining the future of retail | Greenbiz

In January 2020, India was hit by the COVID-19 epidemic. Future Retail was already struggling to stay afloat before the lockout, and by March 2020, the market had picked up on it, resulting in a drop in the share price, on March 2, 2020, from Rs 303.85 to Rs 64.25 on April 8, 2020. In a few months, the stock price plummeted by more than 80%.

As more debt piled up during the epidemic, Future Retail was downgraded even more.

Despite the fact that promoter Kishore Biyani and his family-owned 33.5 per cent of the Future Group, the lenders had practically all of the shares committed.

The government progressively allowed the sale of needed products when the pandemic was brought under control. People, however, preferred to buy their necessities from their neighbours or through online platforms due to the pandemic fear. The majority of Future Retail’s Big Bazaar locations were in malls that developed significantly later. This posed a new obstacle, and the brand is still struggling.

Due to these issues, Biyani decided to hire an investment bank and look for prospective investors to sell a stake in the company. This search led to Mukesh Ambani, India’s richest man, who had surpassed him to become the country’s new retail king.

Amazon vs Reliance:

Future Retail and Reliance Retail agreed to buy the retail and wholesale businesses as well as the logistics and storage businesses from the Future Group for Rs 24,713 crores in August 2020.

The share price rose to Rs.160 for a brief while before falling. Asset sales by institutional investors and Amazon’s resistance to a future retail transaction were the causes of stock price drops.

Amazon objected to the acquisition because of its 2019 investment in Future Coupons, in which it purchased a 49 per cent share. Future Coupons’ investment equated to a 3.5 per cent ownership in Future Retail. The agreement, according to Amazon, includes a condition that forbids the Future from selling off its listed firms without Amazon’s permission, as well as a list of investors that included Mukesh Ambani.

Amazon petitioned the Singapore International Arbitration Centre to suspend the transaction, and SIAC issued an interim suspension order in October 2020. Following that, Amazon went to the Delhi High Court. The deal was approved by the CCI (Competition Commission of India) on November 19, 2020.

The deal is compliant with Indian law, according to the High Court’s judgment on December 21, 2020. The arrangement was then decided by the statutory authorities, according to the High Court.

SEBI authorized the deal on January 20, 2021, stating that it complied with the rules.

However, on January 25, 2021, Amazon filed a new petition with the Delhi High Court, this time seeking the arrest of Amazon CEO Kishore Biyani for violating the Amazon-Future Coupon agreement.

More Enlightening words:

Finally, the future of retail organizations under the Reliance Group appears to be promising. Even said, if Amazon continues to try to annul the Future-Retail pact until February 2021, the battle will linger for a few more months, if not longer.

However, following CCI and SEBI approvals, as well as the Delhi High Court’s rejection of the group’s case, it appears that the deal will go through, and Reliance Retail will continue to operate in India.

Insolvency in future Retail:

According to three persons familiar with the situation, Future Group’s lenders would seek group insolvency after an agreement to sell assets to Reliance Industries Ltd (RIL) companies fell through, with a recovery rate of less than 10%.

They claim that because the Future Group entities’ industries are intertwined, a holistic approach makes sense. On January 31, the total loans of Future Group firms were Rs 28,921 crore. Future Retail and Future Enterprises account for the majority of this.

Future Retail’s main lender, Bank of India, filed a petition in Mumbai bankruptcy court on April 21 requesting insolvency proceedings against Kishore Biyani’s flagship company.

Cash flow Impacted:

Lenders will take a similar strategy with other delinquent group companies, such as Future Enterprises, which also missed payments in the last week of March.

Although the National Firm Law Tribunal (NCLT) is required by the Insolvency and Bankruptcy Code (IBC) to admit a company within 14 days of being referred, the procedure usually takes at least three months.

Since the value of the assets on Future’s has plummeted, the recovery could be as low as 10%. “Future’s cash flow has been cut by around 65 percent as a result of Reliance’s lease takeover of 946 stores, according to one of the sources,” one of the sources stated. “The company does not have enough inventory or money to pay its employees or vendors to keep the remaining stores open. These establishments’ landlords will eventually evict them as well.”

After Future failed to make rental payments, Reliance took over the outlets.

The principal assets that Future Group retains are approximately 30 large-format stores and over 300 small-format outlets, all of which are leased. In Nagpur, it also has a completely automated supply chain solutions facility, as well as about 20 owned outlets guaranteed to various lenders.

EasyDay Retail | Retail Design, Environment Design | Elephant  Design+Strategy, India | Elephant DesignOn January 31, Future Retail, which owns Big Bazaar, Hypercity, Foodhall, eZone, Easyday, and Heritage Fresh, has an outstanding debt of 14,090.6 crores. Future Enterprises, which manufactures, designs, procures, and distributes fashion clothes, owes 6,880 crores in debt. The other essential group firms are Future Lifestyle and Fashion, Future Supply Chain, and Future Consumer.

After 69 per cent of secured lenders voted against the transaction, 86 per cent of shareholders, and 78 per cent of unsecured creditors voted in favour, Reliance and Future formally called off the Rs 24,713 crore merger announced in August 2020.

Secured lenders voted against selling assets to Reliance because Future Group had not assured them that the buyer would accept the proposed distribution plan. Future suggested sending around 45 per cent of the revenues to Reliance, totalling Rs 12,612 crore, while repaying the rest loans over a seven-year period.

The sale of assets owned by Reliance group firms has been delayed by a 20-month court dispute between Future Group and Amazon. Amazon had objected to the asset sale, alleging that its 2019 agreement with Future Coupon barred asset sales to Reliance Industries.

Edited by Prakriti Arora

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