Does Future Group's poor FY21 show mean end of the road for Kishore Biyani?

Financials fall due to Covid lockdowns, group posts Rs 5,943 cr loss on Rs 11, 723 cr sales

Future Group chairman Kishore Biyani is facing his biggest challenge ever as he tries to salvage the Future group’s merger transaction with Reliance Retail Ltd after the Supreme Court ruled against the Future group today.

Though Future Group said it would look at all legal remedies and exercise its options, its sagging financial performance is making it an unattractive target for acquisition for any acquirer. For the fiscal ended 2021, the group has made a loss of Rs 5,943 crore on sales of Rs 11,723 crore, a drop of 66 per cent over fiscal 2020. The group’s total debt was up by 7 per cent to Rs 20,742 crore (see chart).

The group companies started slowing down just before the Covid lockdown announced in March 2020 and lost significant business in the rest of the fiscal 2021. Biyani, 59, set up Future group from a single store in Mumbai and went on to become India's largest offline retail company. But intense competition from online players and high debt made him sell his business to Reliance Retail Ltd in August last year. Amazon, which had the Right of First Refusal agreement with Future Coupons, a Future group company, moved the courts to stall the deal. "With the SC agreeing with Amazon today, Biyani will have to use all his negotiating skills to save the Reliance transaction," analysts said.

Analysts said the Indian lenders, who have significant exposure in Future group companies, will be left holding the can as the company has already defaulted on its loans and Reliance Retail transaction was its last hope. While Bank of India has an exposure of Rs 5,750 crore to Future group companies, Axis Bank has an exposure of Rs 1,250 crore, and Bank of Baroda has an exposure of Rs 750 crore.

Future group’s flagship, Future Retail applied for the one-time restructuring (OTR) of its debt in September last year under the RBI guidelines issued on August 6, 2020. It did not make debt repayments that were due since then the OTR process was initiated. “The Reliance deal was the biggest lifeline for the Future group. If Reliance backs out due to litigation, it may lead to further financial haemorrhage of the group companies. In the worst case scenario, the banks may take the group companies to bankruptcy courts to recover their dues,” said an analyst.

Analysts said FRL has a low collection period which is inherent in the industry. But the inventory days are higher on account of bought out stock arrangement which leads to higher working capital requirement.  Due to COVID-19 outbreak, the company has not settled its creditors, especially the group companies on account of which trade payables increased.

Besides, analysts said due to sagging sales, the creditors have been further stretched in FY21. Increased competition from both brick and mortar and online players has further impacted overall sales of Future group companies while competition from e-commerce players remains its key threat. Besides, with the Indian government planning to liberalise rules relating to multi‐brand retail, this will open up foreign investments which may pose a threat to FRL and other group companies.