“There are three kinds of entrepreneurs — creators, preservers and destroyers. I consider myself to be both creator and destroyer. Preserving the status quo has never been my cup of tea,’’ wrote Kishore Biyani in his book It Happened in India , published in 2007.

Today he follows the same principle and is looking forward to creating a new fashion business after selling controlling stake in his flagship Pantaloon stores to the Aditya Birla group last year.

Besides, with FDI being allowed, the cost of raising funds will become cheaper, making business easier for India’s Sam Walton.

“The cost of capital is nearly 13 per cent in India as compared with 1 per cent to 1.5 per cent elsewhere in the world which was a distinct disadvantage to Indian retailers and hence FDI in retail is needed to give us the competitive edge,” Biyani, Chairman of the Future Group, said in a recent discussion on FDI in retail.

Biyani has been reiterating the need for his group to reduce debt and raise capital at a low cost. “We have learnt it the hard way. When cost of capital is high and growth is low, business becomes risky. We have to work on lowering our debt,’’ he had admitted in the recent past.

Trimming debt

With two back-to-back deals last year, Biyani did manage to get rid of some of his debt (estimated at nearly Rs 7,800 crore).

It was the interest costs from this debt that were eating into the group’s profits. Biyani had to let go of a majority stake (50.1 per cent) in the Pantaloon department store (part of Pantaloon Retail) to A.V. Birla Group’s Aditya Birla Nuvo for Rs 1,600 crore, with debt of Rs 800 crore also transferred.

This was followed by the sale of 40 per cent stake in Future Capital Holdings to US-based private equity firm Warburg Pincus for Rs 420 crore. Another private placement with Bennett, Coleman and Co for Rs 200 crore also helped ease the group’s debt position.

Through these deals, the Future Group’s debt burden has been slashed by nearly Rs 6,000 crore, leaving about Rs 1,800 crore to be cleared. Biyani started selling stake in his companies from last year to become debt-free.

His need to scale up before the MNCs came made him borrow funds at a high cost. In the past two years he did not manage to find strategic partners for the business either.

But now Biyani is poised for more stake sale to become completely debt-free this year. Next on the cards is going to be a sale in another non-core business through Future Generali, say company insiders.

Even the Hong Kong-based Li & Fung, investor and partner in logistics company Future Supply Chain Solutions, may hike stake from the current 30 per cent, leading to more fund infusion for the debt-ridden group.

According to an analyst with brokerage firm Motilal Oswal: “With even his insurance business out of the way, Biyani will get rid of the major part of his debt and can go back to his original business of retail. Retail has always been a highly capital-intensive business and in his hurry to expand quickly he ran into such huge debt.”

“It would be hypothetical to talk about whether we would have still have done these deals if FDI had been allowed last year. But we would still be in the retail business and taken initiatives to build operational efficiencies. Let us see how the events unfold in future but our family will continue to be as involved in the business,’’ explains Biyani, who will now be focusing on the core business of retail.

Rebuilding fashion biz

Having let go of the over 85 Pantaloon stores to the Aditya Birla Group, the onus is on Biyani to build his fashion business back again. After announcing the two deals, there was further restructuring within the group.

The fashion business of the Future Group was vested with a new listed entity — Future Fashion.

The new company had been formed by de-merging the fashion business of Pantaloon Retail India (PRIL) and Future Ventures India (FVIL), both companies of the Future Group, a decision approved by the boards of these two companies.

With this realignment, the Future Group will have three listed companies under its fold: Future Fashion, PRIL and FVIL.

Future Fashion will now operate fashion retail formats such as Central, Brand Factory, aLL and Planet Sports, which were once a part of PRIL. It will also have fashion apparel brands Indus League, Lee Cooper, Celio, Holii, Indus Tree that earlier belonged to FVIL.

PRIL (to be renamed Future Retail) will now operate the hypermarket and supermarket chains such as Big Bazaar and Food Bazaar, along with such formats as Home Town and eZone, while FVIL will remain focussed on the food and FMCG sectors, comprising the group’s private label brands and the mega food parks.

PRIL was also merged with its subsidiary, Future Value Retail, which had the value formats Big Bazaar, Food Bazaar and KB’s Fair Price, to cut operating costs and improve investor confidence.

According to a recent Morgan Stanley research report, transparency, an area of concern in the past, has improved with the recent restructuring of the Future Group. PRIL has sought to reduce financial obligations towards its subsidiaries and improve its focus as a pure retailing company while the new company, Future Fashion, will give investors the option of participating as a pure apparel retail play.

“After the sale of Pantaloon Retail, we wanted to simplify the business and give it the push it deserves. The fashion play will enter a new phase of growth,’’ said Biyani at a fashion show held recently for the launch of Future Fashion.

With plans of rebuilding this business, Biyani is targeting revenues of $1 billion from the fashion business which includes brands such as Scullers, Indigo Nation and even international brands Lee Cooper, Celio and Clarks.

Search for partners

Meanwhile, the search for strategic partners for other ventures continues.

“Of the retailing assets, the company will look forward to strategic partnerships in E-zone (electronic retailing), which is still incurring losses, and Home Town (home décor retailing).

As Home Town stores operate primarily in ‘FDI-compliant’ cities, it would be easier to find an international partner.

However, due to the 30 per cent local SME sourcing norm, E-zone stores may not find an international strategic partner soon. In that case, the company would go for a local partnership,” claims a research report by ICICI Securities.

While Biyani has kept his three listed companies ‘future ready’, he is not in a hurry to sell more stake or even rope in an international partner immediately.

With better financials, he feels his bargaining power has improved and he would rather wait for foreign players to approach him than the other way round. He has not even travelled abroad after FDI was announced, says an industry observer.

With the cost of capital hopefully falling once FDI is allowed, Biyani will once again go back to what he believes in: ‘creating and destroying’ businesses.

Also read: >It’s Central to the business

> purvita.chatterjee@thehindu.co.in

Related Topics
comment COMMENT NOW