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    Kishore Biyani sets sights on HyperCity to build bigger bazaar in future

    Synopsis

    HyperCity, which has big-box format stores at marquee locations in Mumbai as well as Hyderabad and Bengaluru, posted sales of Rs 1,077 crore in FY17.

    ET Bureau
    MUMBAI: Future Group is in talks to acquire grocery retailer HyperCity, said people with knowledge of the development. A deal would give Future boss Kishore Biyani sway over a network of about 20 hypermarkets, mainly in western India, according to the people.

    The supermarket chain that opened its first store in 2006 is a subsidiary of Shoppers Stop, which owns a 51 per cent stake while parent K Raheja Corp holds the rest.

    HyperCity, which has big-box format stores at marquee locations in Mumbai as well as Hyderabad and Bengaluru, posted sales of Rs 1,077 crore in FY17. Talks on the enterprise value have been inconclusive although one of those cited above said it could be in the neighborhood of Rs 600-1,000 crore.

    “The deal involves Rs 250 crore of debt with HyperCity, which will move to Future Retail’s books, Rs 250 crore in cash and the remaining Rs 500 crore in Future Retail’s shares,” said one of those cited above.

    “The deal is similar to its earlier acquisition of Heritage and Bharti Retail.” If the transaction does take place, this will be Biyani's fifth acquisition in as many years, as Future Group consolidates its position by region, especially in grocery retail.

    Bharti Retail and Big Apple had a significant presence in north India with over 250 stores while it gained a southern footprint with Nilgiri’s and Heritage.

    According to Euromonitor data, Big Bazaar, Future Group's hypermarket format, is already India's market leader, with a 22.4 per cent share of the organised store-based retail market in 2016.


    Image article boday


    ‘Win-Win Deal for Both
    However, Avenue Supermart’s D-Mart is the largest player with annual sales of Rs 11,897 crore, mainly in western India.

    “The deal negotiations started about two weeks ago and are expected to close by end of the month,” said a banker. Both Future Retail and Shoppers Stop didn’t respond to email queries.

    “Rakesh Biyani, joint MD of Future Retail Ltd, initiated the negotiations with Rajeha,” said an executive. “Negotiations are on but not yet reached the diligence or documentation stage. The structuring too is being worked on as it may be a share swap or part cash and part stock. But both sides are keen to stitch together a deal.”

    A deal would make sense for both companies, Edelweiss Securities senior vicepresident Abneesh Roy said.

    “Shoppers Stop hasn't been able to scale it up and the business is very different from their core department chain format,” he said. “Future Group has been adding distressed assets to spruce up its retailing business and build economies of scale and cut overall cost of operations.”

    Aggressive strategy
    As part of a strategy to more than treble its revenue to Rs 75,000-1 lakh crore by 2021, Future Group has been aggressively adding stores, though mainly in the smaller or convenience store formats. Over the years, Kishore Biyani, who was forced to sell the Pantaloons department store chain in 2012 to the Aditya Birla Group, has also managed to exit non-core businesses such as financial services and office product retailing.

    The HyperCity deal, if it gets done, will add about 1.4 million square feet of retail space to Future Retail, taking the total store count to more than 900 outlets. It now operates around 13.8 million square feet of retail space in 221 cities, with annual sales of Rs 17,075 crore. Consolidation in the grocery space will help Future Group push its private label consumer products, which earn higher margins than other items.

    For Shoppers Stop, which opened its first department store over 25 years ago, the food and grocery business was a relatively new one and was dragging down its overall profitability with a net loss of Rs 40 crore in the last fiscal. The format has also been seeing top management exits with two CEOs quitting over the past two years.

    HyperCity can offer a significant upside to Future Group in the metros, said a consultant aware of the talks. “They are anchor tenants in several marquee properties like Inorbit Mall in Malad,” he said.

    Around 65 per cent of HyperCity’s business comes from its food portfolio, with garments accounting for 16-17 per cent and the rest from other categories. For Big Bazaar, 65-70 per cent of sales are from higher-margin, non-food categories like fashion and homeware. Even within food, 30 per cent of sales is from private labels. Future Group is looking to introduce higher merchandise mix, especially in value fashion.


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    ( Originally published on Sep 09, 2017 )
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