Future Group Bonds, Company Stocks Surge On RIL Deal

On Monday, Future Group surged in the bond market and shares of some of its companies hit upper circuit at the stock exchanges after Reliance Industries Limited (RIL) said that it will be acquiring certain units of the conglomerate.

Future Retail Ltd hit 20 percent upper circuit at Rs 162.35 while Future Enterprises, Future Consumer and Future Lifestyle Fashions were all up 5 percent to Rs 21.10, Rs 12 and Rs 152.80, respectively. Shares of Reliance Industries Limited opened over 2 percent higher at Rs 2,174 on Monday.

Dollar notes sold by Future Retail Ltd., which averted a default earlier this month, rose 16 cents to 89.1 cents on the dollar, set for the biggest jump since issuance in January, according to Bloomberg-compiled prices.

RIL will acquire the retail, wholesale, logistics and warehousing units of Future Group for Rs 24,713 crore, it said in a stock exchange filing on Saturday. As a part of the acquisition, Future Group will first merge the businesses to be acquired into one Future Enterprises Limited (FEL).

The Retail & Wholesale Undertaking is being transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of Reliance Retail Ventures Limited (RRVL). The Logistics & Warehousing Undertaking is being transferred to RRVL.

As per scheme agreed upon, Reliance Retail and Fashion Lifestyle will be acquiring 13 percent in FEL.

Brokerages are positive on the deal that helped the Future Group par its debt burden.

"We see multiple strategic positives for Reliance here: scale and synergy benefits to add to topline/earnings growth trajectory, leveraging the supply chain and retail infrastructure for a faster scale up of the online JioMart platform/new commerce and access to good retail locations particularly in the Tier 1/Metro cities where Future had strong presence," the JP Morgan in a report.

Brokerage firm Kotak Institutional Equities believes that the acquired businesses can potentially command a higher valuation multiple of 20-25X EBITDA as and when RIL is able to turn around its uninspiring performance and put it on a robust growth trajectory like its extant business.

"The acquisition of the retail, wholesale and supply chain business of the Future Group complements and makes a strong strategic fit into Reliance's retail business. This will help Reliance retail to accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times," RIL had said in its statement announcing the deal.