SSG Capital to buy 40% in Future Supply Chain for Rs580 crore

In 2014-15, Future Supply Chain posted income from operations amounting to Rs408 crore and earned a net profit of Rs25 crore.

Kishore Biyani’s Future Retail Ltd on Thursday said that alternative asset management firm SSG Capital Management Ltd will buy a 40% stake in its supply chain business for Rs.580 crore.

The deal values Future Supply Chain Solutions Ltd at Rs.1,450 crore, Future Retail informed the stock exchanges.

“This will include 14% stake to be acquired from Future Retail Ltd (FRL) and the management team, collectively, and 26% from another minority shareholder SKC 1 Ltd (SKC),” the company said in a press release.

Future Retail currently holds 70.17% equity stake in Future Supply Chain, SKC 26% and the management team the rest.

SKC is part of Fung Capital, the private equity partnership of Victor and William Fung, the chairman and group managing director of the Li & Fung Group.

Future Supply Chain Solutions Ltd was incorporated in April 2007 and is promoted by Future Retail. It is an end-to-end supply chain and logistics company.

In 2014-15 fiscal, Future Supply Chain posted income from operations amounting to Rs.408 crore and earned a net profit of Rs.25 crore.

Commenting on the proposed transaction, Future Retail’s managing director Kishore Biyani said, “We are excited about this transaction including our partnership with SSG. It is a step towards our stated intent of optimal monetization of some investments held by FRL.”

This is the latest in a string of developments at Future Group which involves monetization of assets, restructuring of operations and acquisitions to expand the firm’s footprint geographically and online—in an endeavour to have a large omni-channel presence.

On Wednesday, the company acquired online furniture store FabFurnish.com—its first acquisition of an Internet store.

In May last year, it announced the acquisition of Bharti Retail Ltd which has 203 EasyDay stores that generate close to Rs.2000 crore in revenue.

Future Retail has 300 stores and revenues of close to Rs.13,000 crore.

The company has also made substantial investments in warehousing and supply chain.

When the acquisition of Bharti Retail gets completed later this month, Future Retail will be demerged into two companies. One of them will be the front-end and retain the name Future Retail, and will have 570 stores and a presence in multiple retail formats across 243 cities.

The second will be the back-end, investments and infrastructure firm and will be listed separately as Future Enterprises Ltd.

The demerging of the companies will further help the company monetize the back-end as it becomes FDI compliant. India doesn’t allow foreign companies to own majority stakes in retail companies that sell more than one brand.

Assets that Future Retail can monetize include Future Generali India Life Insurance Co. Ltd.

There has been some internal restructuring happening as well. Chains like KB’s, KB’s Fairprice and Big Apple, which were part of Future Consumer Enterprise Ltd, another group company, have come under Future Retail’s umbrella.

Retail chains Aadhaar and Nilgiris are still part of Future Consumer Enterprise and may also shift to Future Retail in due course.

Meanwhile, the firm’s the debt equity ratio at 0.91 accounts for Rs.4,785.04 crore of total debt as on 30 September. And unlike its rivals, most of whom are conglomerates like the Tata Group, Aditya Birla Group and Reliance Industries Ltd, with deep pockets also vying for a share of the e-commerce pie besides having a retail footprint, Biyani has been more aggressive and made early investments.

“The pointed acquisitions and investments will help Biyani get into omni-channel across categories. They are strengthening their presence—category by category and capability by capability,” said Anurag Mathur, leader (retail) at consulting firm PriceWaterhouseCoopers India, while pointing out that the Bharti Retail acquisition also gave it access to its systems established by Wal-Mart Stores Inc. and the management.

Moreover, the recent FDI policy in online marketplace model, if implemented properly, could benefit Biyani and other big-box retailers as it provides them level-playing field.

E-commerce firms, like Flipkart Ltd, Amazon India and Snapdeal, have grown rapidly in India’s nascent online retail market by luring consumers to shop online with deep discounting as they had access to funds.

“Given the restrictions for the online marketplaces, we can now expect more consolidation,” said Rajat Wahi, a partner and head (consumer, retail and agri sectors) at KPMG in India.