New Delhi: Reliance Industries Ltd's acquisition of debt-strapped Future Group will almost double the footprint of its retail business, which now is valued at up to $68 billion, analysts said.
The oil-to-telecom conglomerate on Saturday announced the acquisition of Future's retail, wholesale, logistics and warehousing units for Rs 24,713 crore. The deal terms entail a merger of five listed units of Future Group into Future Enterprises Ltd (FEL).
Reliance Retail has also proposed to invest Rs 1,200 crore in FEL preferential equity (6.09 per cent of post-merger equity of FEL) and Rs 1,600 crore in preferential warrants (option to acquire further 7.05 per cent).
The deal increases the retail store footprint of Reliance Retail Ltd, a unit of RIL, from current 28.7 million square feet to 52.5 million sq ft, consolidating its pole position, analysts said.
While UBS said the deal would require approvals from SEBI, CCI and NCLT in addition to no objection from creditors and minority shareholders, JP Morgan said it remains to be seen if Reliance would look to re-brand the existing Future group stores under own formats.
The deal brings potential synergies from the increased geographic presence, improving sourcing efficiencies and cost rationalisation, UBS said raising its valuation of Reliance Retail from $64 billion to $68 billion.
HSBC said the acquisition implies a clean acquisition of Future Retail, Future Lifestyle Fashions Ltd (FLFL) and Future Supply Chain Solutions Ltd (FSCSL). In addition, it will acquire a 13.1 per cent shareholding in the remaining of FEL.
"The deal will allow Reliance Retail to almost double its retail area under operation and increase the store count by 15 per cent," it said.
Goldman Sachs said the proposed transaction could solidify Reliance Retail's market leader positioning in organised retail across categories, bolster warehousing and logistics enabling faster growth for its online offering JioMart and improve competitive positioning versus foreign retailers like Walmart and Amazon.
Motilal Oswal said the deal holds very high strategic interest to RIL as it would aid in enhancing footprint, offer a good legacy franchise and help build competitive strength.
Credit Suisse said EBITDA per square feet of the acquired portfolio is less than one-third of that of Reliance Retail and Avenue Supermarts.
"This is due to both lower revenue per sq ft and higher cost structure (both rent and employee cost). In our view, the synergies are higher on the revenue front," it said.
Further synergies should come from a higher scale with benefits from saving in procurement, logistics and supply chain costs.
Also, the deal will lower delivery cost and reduce delivery timelines for JioMart as a result of deeper presence through Future Retail's neighbourhood store network of Heritage Fresh (in South India) and EasyDay Club (in North India).
"Both should help to improve the competitive positioning of RIL's online and offline retail segments," it added.