Kishore Biyani Acquires Hypercity For Rs 655 Crore From Shoppers Stop

Kishore Biyani's Future Retail Ltd. will buy the Hypercity large-format stores from Shoppers Stop Ltd. as the retailer continues to expand amid growing share of formal trade in the $670-billion market.

Future Retail will acquire the loss-making hypermarket chain with 19 outlets for Rs 655 crore in a cash-and-stock deal, it said in a stock exchange filing on Thursday. It will issue up to 93.1 lakh shares to real estate developer K Raheja Corp Group-owned Shoppers Stop and other shareholders at Rs 537 apiece, aggregating to Rs 500 crore. The remaining Rs 155 crore would be paid in cash, according to the filing.

Hypercity is 51 percent owned by Shoppers Stop and 14 investors, including members of the RC Raheja family, hold the rest. The companies expect to complete the deal in three to five months, subject to regulatory approvals.

“This will be a huge add-on for Future Retail's revenue and is a strategic buyout to expand the business inorganically,” said Prashant Agarwal, joint managing director at retail consultancy Wazir Advisors. The retailer's sourcing network and private labels can add value to Hypercity stores, he said.

Retail sales through super- and hypermarkets are expected grow at 20 percent, twice the pace of traditional trade, over the next decade, according to the government-backed think tank India Brand Equity Foundation. The pace of formalisation of the economy increased after last year's demonetisation and the introduction of Goods and Services Tax. Future Retail has been among the gainers.

The deal will boost its revenue by 6 percent, said Abneesh Roy, associate director at Edelweiss Securities Ltd.

The acquisition is part of Biyani's aggressive expansion strategy. The retailer plans to open 100 Big Bazaar stores over the next three to five years. It's also looking to double its small-format Easy Day outlets to 1,000 in the year to March and increase the count fourfold in three years, according to its earnings presentation for the quarter ended June.

Deal To Help Shoppers Stop Pare Debt

Shoppers Stop, promoted by real estate developer Raheja Group, recently sold 5 percent in its namesake lifestyle and fashion arm to Amazon.com. The Hypercity sale will help it offload of a struggling business and focus on its core lifestyle and fashion retailing department stores, said Arvind Singhal, chairman of retail consultant Technopak Advisors.

The proceeds of the sale will also help the company pare debt, Edelweiss Securities said in a report after the Economic Times first reported on the possible deal citing people aware of the matter.

Hypercity's debt stood at Rs 327 crore at the end of June. Sales rose 8 percent in the three months ended June while it's like-to-like growth stood at 2.5 percent, according to stock exchange filings. It reported a loss of Rs 26.9 crore during the period.

IDFC's Take On Shoppers Shop's Stake Sale

• Shoppers Stop's stake sale in Hypercity Retail to Future Retail is a major positive
• Hypercity format, with accumulated losses of Rs710 crore as of FY17, was a drag on Shoppers Stop's cash flows
• Gross debt will reduce from Rs 890 crore to Rs 260 crore by FY19
• Debt could by nil once the share lock in of 1 year completes
• Expected sales of FY19 reduced by 23 percent
• Operating profit reduced by 3 percent
• Earnings stand revised upward 78 percent
• "Extremely accretive" event and maintained at 'Outperform' at IDFC