Kishore Biyani's Future Group, which owns the flagship Pantaloon Retail, India's largest organised retailer, has been saddled with rising debt and interest costs, and slow growth in sales leading the company to go into the red in the December quarter.
Last Friday, the rajah of retail in India, Kishore Biyani, handpicked two of his generals, Shailesh Haribhakti and Rakesh Biyani, to assist him in creating a turnaround blueprint for his massive retail operations. Over the next 12-18 months, this review committee will strategise and find ways to realign group operations and explore several value-creation opportunities through stake sales, JVs and in some cases exits from non-core businesses. And, despite the current regulatory ambiguity over foreign investment in multi-brand retail, this apex group will continue to spearhead the ongoing dialogue with foreign giants like Walmart and France's Carrefour for future tie-ups.
Such initiatives will aim at reducing Pantaloon Retail's debt by around Rs 2,500 crore and is also likely to see a much-needed equity infusion of at least Rs 1,500-2,000 crore, sources say.
Kishore Biyani's Future Group, which owns the flagship Pantaloon Retail, India's largest organised retailer, has been saddled with rising debt and interest costs, and slow growth in sales leading the company to go into the red in the December quarter. According to the last available data of June 2011, the debt from its retail operations stood at Rs 4,200 crore and on a consolidated basis - which includes Future Capital - stood at Rs 7,846 crore.
Haribhakti, Chairman and Non-Executive Independent Director of Pantaloon, is a renowned chartered accountant and a specialist in financial and corporate restructuring. He is also on the board of several Indian conglomerates. Rakesh Biyani, Kishore's cousin, is the Joint MD of Pantaloon and Director, Retail, for the entire Future Group.
He is also a member of the Biyani Family Business Board, which oversees the promoter family's business interests and has played a key role to scale up the value retail formats of Big Bazaar and Food Bazaar, which contribute a lion's share of revenues.
"The bigger mandate for this team is to consolidate the value chain and integrate operations," said a senior group official, on condition of anonymity. "There are many moving parts in this. And, one needs to be nimble. This is a standard practice followed by many boards. It's like a board within a board for quicker implementation and cutting through bureaucracy," Haribhakti told Business Standard.
Kishore Biyani, Managing Director of Pantaloon Retail, and Future Group CEO, was not available for comment.
So, what's on the table? BS spoke to several people involved in the various initiatives to piece together the ambitious blueprint. Biyani's retail empire has four pillars. Food, fashion, home & consumer electronics and, lastly, non-core businesses like financial services. Sources say while the plan is to consolidate the first two, in both home and financial services, Future Group is looking at minimising its exposure.
To begin with, Biyani is looking at finalising a deal with Japan's Mitsubishi Corporation and Lawson for his disparate food sourcing, manufacturing and distribution business units. Lawson is Japan's second largest convenience store chain and is a part of Mitsubishi. The two are already in advanced negotiations and sources say Biyani is giving the final touches for creating a holding company where his group's stakes in the various operating companies will first get transferred and then the foreign partner will pick up a strategic stake.
That would cover the food parks, the agri and dry grocery sourcing unit Future Agrovet, Future Farm Fresh, the fresh fruits and vegetables sourcing entity, private label divisions like Capital Foods and Future Consumer Enterprises, and the cash-and-carry distribution set-ups of Aadhar, and KB's Fair Price stores.
While Mitsubishi is expected to pick up 49 per cent stake, it being an FDI compliant transaction as it will be for sourcing and back-end infrastructure, Biyani may also end up giving a controlling interest, say sources following the development. KPMG and Nomura are believed to be advisors in this transaction. The rural retailing venture Aadhar and KB Fair Price stores may then use the Lawson brand under a master franchise agreement model.
"This deal may actually be the first to get completed, by June-end, as considerable work has already gone in," said an official on condition of anonymity. "A foreign partner will help us extract the maximum value to integrate and scale up our food business," he added.
The next in focus is the home solutions and retail business, which has the Home Town stores and the consumer durables and electronics superstores under E-zone. "We are not adding value here as we are not into manufacturing. We buy and sell and the margin opportunity in such trading activities is limited," said an official. Therefore, the plan will now be to hive them off through divestments or stake sales. Currently, with no FDI, options to rope in foreign partners for the seven Home Town stores and around 40 E-zones would be limited and according to investment banking sources Biyani has sounded out two Indian business groups to explore equity stake sales in Home Town, for a valuation of Rs 700 crore.
The investments made by flagship Pantaloon in financial services like the NBFC Future Capital Holdings and the two insurance ventures with Italy's Generali Group have already been identified non-core. But, Biyani's plan to exit FCH is taking longer than expected.
Sources say there are still discussions going on with three likely suitors, including PE players Bain Capital and Apax Partners. However, talks with Hyderabad-based media, sports and retail group Deccan Chronicle Holdings (DCH) are still inconclusive. "We are not interested in buying FCH and we are not in discussions with them," P K Iyer, vice-chairman of DCH, told Business Standard.
Amit Chandra, MD, Bain Capital India, did not want to comment on speculation.
Investment bankers following the deal say DCH's efforts to monetise some non-media divisions like sports and book retail have been going slow, which in turn is impacting its decision to do a deal in FCH. Moreover, some PE investors have not been keen to accept the condition that the incumbent FCH management team will continue even after they buy a majority stake.
But, Pantaloon's management is confident of "closing the deal by June-end, as there has been renewed interest in the company, following good numbers in the last quarters. The financial sponsors have shown positive feedback," said a group official who did not wish to be identified. The group is hopeful of raising Rs 1,500 crore through these two transactions. A Future Group spokesperson said, "Discussions are underway with several parties. We cannot comment on the specifics of the deal at this moment."
(Source-:afaqs.com)
