Reported Aditya Birla Retail, Future Group merger is win-win for both

The deal will Help Birla exit loss making retailer, while allowing Biyani to grow stronger in the retail business

A prospective merger between Kishore Biyani's Future Group and Aditya Birla Retail (ABRL) a unit of Aditya Birla group or acquisition of the latter by the former, as reported by the Economic Times on Tuesday, is likely to help both sides. 

Birla group has spoken to prospective buyers including private equity firms in the past but those talks did not fructify. Selling to a retailer makes sense given that the business has substantial losses and promoters would not want to invest more money, said industry experts.

However, Future Group in a statement on Tuesday denied any such talks. 

“PE firms might not have seen growth in the business given that it has made substantial losses. A retailer like Biyani could rationalise costs such as head office expences, logitsics and so on. He can also draw economies of scale on buying, supply chain besides drawing many synergies," said Arvind Singhal, chairman of Technopak, a business consultancy.

ABRL, the fourst largest grocery chain, posted a loss of Rs 571 crore in FY2015, with total debt of Rs 5,323 crore as of March 31, 2015.

The deal is expected to help Biyani consolidate his business and emerge as the largest player in southern India, which has significant presence of modern trade. Future Group currently operates over 700 stores with a total footprint of 13 million sq ft. 

“It will definitely help Biyani to consolidate back end operations and save costs and have separate front end entities such as Big Bazaar, Nilgiris, KB's Fair Price and so on," said Sanjay Badhe, a retail consultant and former head of marketing at Aditya Birla Retail.

Badhe said with Nilgiris and More, both of which have sizeable presence in South India, Future could become a formidable player in the region. In 2014, Future group bought Bengaluru based supermarket chain Nilgiris for Rs 300 crore and last year announced the merger of Sunil mittal's Bharti Retail with itself.  In 2012, Biyani sold fashion chain Pantaloons to Aditya Birla to reduce the debt.