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Kishore Biyani-led Future Retail Ltd has inked a strategic deal to consolidate the retail and allied businesses of Heritage Foods through an equity transaction.
The Heritage store chain of 124 stores in Hyderabad, Bengaluru and Chennai, developed by the family members of Andhra Pradesh Chief Minister N Chandrababu Naidu, and serving over 24 million customers annually, becomes part of the Future Group.
These small-format stores will complement Future Retail’s existing network of 379 small-format EasyDay stores in northern cities of India.
The retail and allied businesses of Heritage Foods posted revenues of ₹629.70 crore during 2015-16, wherein it closed with revenues of ₹2380.58 crore and a net profit of ₹55.43.
On closure of the transaction, subject to various statutory clearances, Heritage Foods will get 3.65 per cent of equity in Future Retail Ltd, through fresh issuance of shares by the company.
Heritage Foods will spin off its retail, bakery, agri-sourcing and veterinary care business into a fully owned subsidiary. All these businesses, except veterinary care, will be merged with Future Retail. Together, retail, agri and bakery businesses are valued at about ₹295 crore.
Kishore Biyani, CMD, Future Retail, said: “The consolidation of Heritage small-format stores will strengthen our presence in South India. Scale plays an important role in retail and this forms part of our strategy of aggressively expanding our small stores network to around 3,000 stores nationally by 2021.”
Nara Brahmani, Executive Director, Heritage Foods, said: “Heritage stores are now part of a larger retail network and will benefit from economies of scale and supplier relationships that are critical in modern retailing.”
Dairy business Nara Lokesh, Director, Heritage, described it as a win-win situation for both the companies.
“We plan to strengthen the retail through Future network and grow the dairy business. We are aiming at increasing the dairy output significantly to 30 lakh litres per day by 2021 from 13 lakh litres per day now. Through the deal we get access to a huge network of retail stores to expand our dairy business”.
“While the retail business accounted for about ₹600 crore (about 25 per cent) of Heritage revenues, the acquisition of dairy retail business from Reliance Retail Limited recently, will largely bridge that revenue gap,” he said.
Founded in 1992 by the Naidu's family, Heritage is into dairy, retail, agri, bakery and so on. It commenced retail operations in 2006.
Heritage had planned to add about 25 stores by this fiscal end.
Biyani said that they plan to expand the Future network of retail stores to 4,000 by 2021, which includes 1,000 of its franchisee stores.
On Monday, Future Retail shares closed at ₹152.65, up 1.36 per cent, Heritage closed at ₹879.60, up 9.55 per cent, on the BSE.
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