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Ever since landing in debt trouble three years ago, Future Retail’s business has undergone several permutations and combinations. From being a conglomerate housing fashion, groceries, hypermarkets, and food, Future Retail has now in effect lost the ‘retail’ aspect to its business and turned into a logistics company. It’s also hard to gauge performance given the lack of continuity in business and changing reporting periods.
This, and the latest development, throws the interests of minority shareholders into question.
The company first sold the Pantaloon brand and fashion chain to Aditya Birla Nuvo in April 2012. While it took ₹1,600 crore in debt off the books, Pantaloon was also the company’s money spinner, besides Big Bazaar. The latest deal will see its front-end retail formats merge with Bharti Retail. These formats account for most of Future Retail’s sales, which came in at ₹11,336 crore for the January 2013-March 2014 period, with net profits of ₹2.8 crore. Each Future Retail shareholder (including DVR shareholders) will receive one share each in Bharti Retail, totalling 42.77 crore shares. This new entity will be listed, so shareholders do have an exit option.
But the time taken for such listing is unclear, as are the valuations and pricing post listing. Next, Bharti Retail’s back-end supply chain will be merged with that of Future Retail. But with 4.34 crore shares being issued to shareholders of Bharti Retail in Future Retail, shareholder base expands by close to 12 per cent. Existing investors in Future Retail will thus, see their holding dilute significantly.
This apart, the very nature of the business has changed and forces investors to hold a logistics business. Being listed already, it allows investors to exit. But here, too, stock price performance will dictate gains. While logistics companies hold market fancy at the moment, the sector’s sky-high valuations may result in corrections later on.
Finally, Future Retail earlier had plans of unlocking value by listing its supply chain business through an IPO. This could have been more beneficial to Future Retail shareholders than a merger with another logistics business.
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