With its attention to retail, Reliance bolsters its Future prospects

BL Research Bureau

Reliance Retail’s shopping basket got a major fill over the weekend - with the acquisition of the retail & wholesale business and the logistics & warehousing business of the debt-laden Future Group for ₹24,713 crore. This is the second buy by Reliance Retail in a fortnight, following its acquisition of digital pharma marketplace Netmeds for ₹620 crore.

More buys could follow with Reliance Retail seeming to have embarked on an acquisitions-driven growth strategy. The company is said to be in talks to acquire stakes in online furniture company Urban Ladder, online grocer Milkbasket and lingerie brand Zivame. This approach seems similar to the ‘string of pearls’ strategy adopted by RIL in its digital business through a host of acquisitions such as Haptik, Embibe and Reverie to build a broader digital ecosystem.

Reliance Retail could also integrate acquisitions such as the Future Group’s acquired business and Netmeds with the digital commerce business to be driven by JioMart, besides its brick-and-mortar retail business. These acquisitions could be preparing the ground for consolidation and eventual top-dollar stake sales in Reliance Retail — similar to the recent mega stake sales in Jio Platforms, the digital holding company set up by RIL. An IPO could follow at a later date. Reliance Retail, as part of the overall consumer business, is already one of the key growth engines of Reliance Industries (RIL), and acquisitions such as the Future Group and Netmeds add further heft.

RIL, which plans to take on Amazon India and Flipkart in the e-commerce sweepstakes in India, seems to be bolstering its position with acquisitions such as that of the Future Group and Netmeds. It helps that the Covid crisis has left many businesses struggling and these could be available at attractive valuations to the financially-strong RIL and its subsidiaries such as Reliance Retail. Similar to the Netmeds buy, Reliance Retail seems to have got a good deal in the acquisition of the Future Group’s operations too, with the purchase consideration said to be less than one-time annual sales. Besides, the acquisition of the extended value chain from the Future Group (retail, wholesale, logistics and warehousing) along with well-known brands such as Big Bazaar and Nilgiris is a positive.

Reliance Retail - already the country’s largest organised retailer – gets a quick scale-up with the acquisition of the Future Group’s formidable operations of about 1,800 stores across the country and a strong presence in grocery and fashion & lifestyle segments, in particular. As of June 2020, Reliance Retail had 11,806 stores in over 7,000 towns in the country with 28.7 million square feet of retail space. Of the company’s 11,784 stores as of March 2020, the chunk was in consumer electronics (73 per cent) followed by fashion & lifestyle (about 20 per cent) and grocery (about 7 per cent). In FY 2020, Reliance Retail’s revenue grew about 25 per cent y-o-y to ₹1,62,936 crore while its operating profit rose 56 per cent to ₹9,654 crore. The chunk of the revenue in FY 20 was contributed by connectivity (34 per cent) and consumer electronics (27 per cent) followed by grocery (21 per cent), fashion & lifestyle and petro-retail (9 per cent each). In the operating profit, fashion & lifestyle was the highest contributor (about a third), followed by consumer electronics (29 per cent), grocery (23 per cent), connectivity (13 per cent) and petro-retail (2 per cent).

The recent June quarter saw Reliance Retail’s performance take a hit due to the lockdown impact; revenue declined about 17 per cent y-o-y while operating profit fell 47 per cent. With the gradual easing of the lockdowns now, the business should move towards recovery in the coming quarters. Long-term prospects look bright with the organised retail market in India having immense growth potential.