NEW DELHI: Short supply of cash flows in tandem with soaring promoter debt may place Kishore Biyani who controls Future Retail, which houses the Big Bazaar chain, in the spotlight. While the company is evaluating multiple options to lower debt and free up a high-pledged stake in the retail arm including the merger of insurance joint venture Future Generali, lenders enforcing their rights and ongoing liquidity constraints could pose potential challenges in the future, say analysts.

“These steps, if successful, will raise financial flexibility at the promoter entities and lower the risk of a change of control being triggered for the redemption for the US-dollar bonds. But a subdued valuation due to crashing stock prices, possible delays in finalising new investments and lenders enforcing their rights following the breach of collateral cover requirements could present significant challenges, despite a court ruling providing interim relief until May 4, 2020 from lenders invoking pledges on shares of Future Retail,” said Snehdeep Bohra, associate director of Fitch Ratings. 

On Thursday, Future Retail stock closed at Rs 73.15 a share, down five per cent — giving it a total market valuation of just Rs 3,858 crore.  Total debt of the group’s listed firms stands at Rs 12,778 crore as of September 2019 with a total pledge estimated to be in the range of 92-98 per cent by value. Analysts also said that the present crisis presents opportunities to well-established players like Avenue Supermarts and Reliance Retail.

“Just as Gap did when it bought activewear maker Athleta in 2008, during another economic crisis, many companies are targeting struggling players and may look to pad weak points in their offerings,” said a Mumbai-based analyst.

“While Reliance with a heavy pocket is in a better position to grab a potential stake in the debt laden firm, for Avenue Supermarts it would be win-win that will help them expand their presence while combining the strengths of Future Retail, said a Mumbai-based analyst. Just as Gap did when it bought activewear maker Athleta in 2008, during another economic crisis, companies may look to pad weak points in their offerings.

Future Retail is the largest organised retailer in India with presence in 437 cities and a total store count of 1,388. As Biyani himself admits, “Diversifying into too many categories apart from food, fashion and home furnishings over the years with limited success in some of them” may be the crux of the problem.