Future Retail set to acquire HyperCity for Rs 700 crore
, ET Bureau|
Updated: Oct 05, 2017, 12.23 AM IST
MUMBAI: Kishore Biyani is out shopping again, for the fifth time in as many years. Biyani-owned Future Retail is set to acquire HyperCity, a chain of 19 premium hypermarkets, from Shoppers Stop and K Raheja Corp for Rs 700 crore through a combination of cash and shares, multiple sources aware of the matter said.
A formal announcement is expected on Thursday, after the board meeting of Future Retail. Shoppers Stop owns 51% of the lossmaking supermarket chain that opened its first store in 2006. The rest is held by K Raheja Corp. Future Retail, which operates the Big Bazaar hypermarkets, is aiming to further expand its footprint in western India through the acquisition.
The transaction will be structured like Future Retail’s deal last year for the retail business of Hyderabad-based Heritage Foods, the people said. Part of the company's debt is also likely to get transferred.
"Both sides have been in negotiations for a while. The acquisition will give Big Bazaar access to a premium brand and great locations in metros," said an executive aware of the ongoing talks, speaking on the condition of anonymity. "It will complement Future Retail's hypermarket operations under Big Bazaar.” Biyani was not available for comment. A Shoppers Stop spokesperson declined to offer any comment. ET was the first to break the news of the impending deal in its September 13 edition.
HyperCity, which has big-box format stores at marquee locations in Mumbai, Hyderabad and Bengaluru, posted sales of Rs 1,077 crore in fiscal 2017. Biyani has pivoted from a pureplay retailer to a consumer goods player and has been using inorganic means to expand nationally. If Future Retail’s merger with Bharti Retail and Big Apple strengthened its presence in the North with more than 250 stores, it gained in the South through the acquisitions of Nilgiris and Heritage.
As part of a strategy to more than treble its revenue to Rs 75,000 crore to Rs 1 lakh crore by 2021, the Future Group has also been aggressively adding stores, though mainly in the smaller or convenience formats.
Over the years, Biyani has also sold his Pantaloons department store chain to the Aditya Birla Group and exited non-core businesses such as financial services and office product retailing. Today, Big Bazaar is his flagship brand, with 259 stores covering around 12 million sq ft in 124 cities. According to Euromonitor data, Big Bazaar is India's market leader, with a 22.4% share of the organised store-based retail segment in 2016.
The HyperCity deal, once completed, will add about 1.4 million sq ft of retail space to Future Retail and take the total store count to more than 900. The Future Group operates around 13.8 million sq ft of retail space in 221 cities, with annual sales of Rs 17,075 crore. Consolidation in the grocery space will help the group push its private label consumer products, which earn higher margins than other items. Shoppers Stop’s stock surged 6% on the BSE Wednesday to close at Rs 494.60, in anticipation of the HyperCity deal.
Future Retail rose 0.2% to end at Rs 523.40. THE PREMIUM LAGGARD For Shoppers Stop, which opened its first department store over 25 years ago, the food and grocery business was a relatively new one and a drag on its overall profitability with a net loss of Rs 40 crore in the last fiscal year.
The format has also been struggling with top management exits with two CEOs quitting over the past two years. According to a report by Edelweiss released in the end of September, the HyperCity sale will be positive for Shoppers Stop. "Consequently, we expect SS to sharpen focus on its departmental business and also utilise the sale proceeds to pare debt," analyst Abneesh Roy wrote in the report.
Shoppers Stop recently announced a 5% stake sale in the company to Amazon NV Holdings LLC, the investment arm of the world’s largest online retailer Amazon Inc, for Rs 179.25 crore. The partnership with the ecommerce major was meant to help Shoppers Stop tap customers from non-metro markets and scale up its financial performance.
Around 65% of HyperCity’s business comes from its food portfolio, with garments accounting for 16-17% and the rest from other categories. For Big Bazaar, 65-70% of sales is from higher-margin, non-food categories like fashion and homeware. Even within food, 30% of sales is from private labels.
The Future Group is therefore looking to introduce higher merchandise mix, especially in value fashion, to boost HyperCity's profitability going forward, said analysts covering the sector.
A formal announcement is expected on Thursday, after the board meeting of Future Retail. Shoppers Stop owns 51% of the lossmaking supermarket chain that opened its first store in 2006. The rest is held by K Raheja Corp. Future Retail, which operates the Big Bazaar hypermarkets, is aiming to further expand its footprint in western India through the acquisition.
The transaction will be structured like Future Retail’s deal last year for the retail business of Hyderabad-based Heritage Foods, the people said. Part of the company's debt is also likely to get transferred.
"Both sides have been in negotiations for a while. The acquisition will give Big Bazaar access to a premium brand and great locations in metros," said an executive aware of the ongoing talks, speaking on the condition of anonymity. "It will complement Future Retail's hypermarket operations under Big Bazaar.” Biyani was not available for comment. A Shoppers Stop spokesperson declined to offer any comment. ET was the first to break the news of the impending deal in its September 13 edition.
HyperCity, which has big-box format stores at marquee locations in Mumbai, Hyderabad and Bengaluru, posted sales of Rs 1,077 crore in fiscal 2017. Biyani has pivoted from a pureplay retailer to a consumer goods player and has been using inorganic means to expand nationally. If Future Retail’s merger with Bharti Retail and Big Apple strengthened its presence in the North with more than 250 stores, it gained in the South through the acquisitions of Nilgiris and Heritage.
As part of a strategy to more than treble its revenue to Rs 75,000 crore to Rs 1 lakh crore by 2021, the Future Group has also been aggressively adding stores, though mainly in the smaller or convenience formats.
Over the years, Biyani has also sold his Pantaloons department store chain to the Aditya Birla Group and exited non-core businesses such as financial services and office product retailing. Today, Big Bazaar is his flagship brand, with 259 stores covering around 12 million sq ft in 124 cities. According to Euromonitor data, Big Bazaar is India's market leader, with a 22.4% share of the organised store-based retail segment in 2016.
The HyperCity deal, once completed, will add about 1.4 million sq ft of retail space to Future Retail and take the total store count to more than 900. The Future Group operates around 13.8 million sq ft of retail space in 221 cities, with annual sales of Rs 17,075 crore. Consolidation in the grocery space will help the group push its private label consumer products, which earn higher margins than other items. Shoppers Stop’s stock surged 6% on the BSE Wednesday to close at Rs 494.60, in anticipation of the HyperCity deal.
Future Retail rose 0.2% to end at Rs 523.40. THE PREMIUM LAGGARD For Shoppers Stop, which opened its first department store over 25 years ago, the food and grocery business was a relatively new one and a drag on its overall profitability with a net loss of Rs 40 crore in the last fiscal year.
The format has also been struggling with top management exits with two CEOs quitting over the past two years. According to a report by Edelweiss released in the end of September, the HyperCity sale will be positive for Shoppers Stop. "Consequently, we expect SS to sharpen focus on its departmental business and also utilise the sale proceeds to pare debt," analyst Abneesh Roy wrote in the report.
Shoppers Stop recently announced a 5% stake sale in the company to Amazon NV Holdings LLC, the investment arm of the world’s largest online retailer Amazon Inc, for Rs 179.25 crore. The partnership with the ecommerce major was meant to help Shoppers Stop tap customers from non-metro markets and scale up its financial performance.
Around 65% of HyperCity’s business comes from its food portfolio, with garments accounting for 16-17% and the rest from other categories. For Big Bazaar, 65-70% of sales is from higher-margin, non-food categories like fashion and homeware. Even within food, 30% of sales is from private labels.
The Future Group is therefore looking to introduce higher merchandise mix, especially in value fashion, to boost HyperCity's profitability going forward, said analysts covering the sector.
