The Kishore Biyani-led Future Group, which has entered the final leg its negotiations to buy out the Big Apple chain of food and grocery stores, looks set to take a big bite of the convenient stores segment in the National Capital Region.
According to sources in the know, Express Retail Services Ltd — a joint enterprise of Lalwani Holdings and the Chaurasia Group — which is the promoter of Big Apple, had put the company on the block for a while before entering into bilateral discussions with Biyani’s team. Though the exact valuation is not known, the final deal size could be close to Rs 250 crore. The company clocked a top line of Rs 150 crore in 2011-12 from its existing network of 65 stores. The company had recently forayed into the home delivery format under the Day2Day brand. With the new format, the company has been eyeing a customer base of around 200,000 families in Delhi and NCR in the next 30 months, targeting revenues of Rs 400 crore over the next few years.
“Apart from this, the company is also working on evolving multiple formats of back-end-driven institutional business, with a focus on fruit and vegetables and commodities,” the company’s brass had explained about its plans.
| BIG FUTURE PLANS |
| EXPRESS RETAIL |
| * First Big Apple store opened in 2005, with plans to set up 100 stores by August 2007 |
| * Currently, 65 stores in Delhi |
| * Top line of Rs 150 crore in 2011-12 |
| * Recent foray into online home delivery under Day2Day brand |
| * Plans to have multiple formats of back-end-driven institutional business |
| FUTURE GROUP |
| * Runs 220 KB’s Fair Price stores, of which 100 are in Delhi |
| * Japan Lawson to sign master franchisee deal. Big Apple buy will help Future Group offer bigger pie to Lawson and get better valuation |
| * Not to borrow afresh for the deal |
The promoters of Big Apple — Lalwani Holdings and the Chaurasia Group — have interests in real estate and FMCG. The company started operations in 2005. It works on minimum overhead costs and has a customised product mix that suits the area where it is located. It had also planned to open 100 stores by August, 2007, by expanding in Karnataka and Gujarat. But the plans did not go through.
Munish Hemrajani, the promoter of Express Retail Services, is currently travelling and was not available for comments. Executive Director and Chief Executive Ananda Murthy told Business Standard: “As a matter of policy, we do not comment on market speculations.”
Future Group spokesperson declined to comment on the matter.
Interestingly, this is not the first time that Big Apple’s retail operations have been on the radar of bigger players. In 2007, Sunil Mittal’s Bharti Enterprises had discussions with the company for a similar takeover.
This deal is expected to further consolidate Future Group’s convenience store format KB’s Fair Price, which already has 100 operational stores in Delhi alone. Moreover, a bigger footprint will also make it more attractive for Japanese retailer Lawson Inc, which is also striking an alliance with Future.
Lawson is Japan’s second-largest convenience store chain and is part of Mitsubishi. Biyani is looking at finalising a deal with Japan’s Mitsubishi Corporation and Lawson for his disparate food sourcing, manufacturing and distribution business units.
While Mitsubishi is expected to pick up 49 per cent stake, since it will be an FDI-compliant transaction for sourcing and back-end infrastructure, Biyani may also end up giving a controlling interest, say sources following the development. KPMG and Nomura are the advisors in this transaction. The rural retailing venture Aadhar and KB’s Fair Price stores may then use the Lawson brand under a master franchise agreement model.
“It (the buy) will help Future group expand its presence in convenience store format. It can offer bigger pie to Lawson and get better valuation for its KB’s Fair Price, which has over 220 stores, half of which are in Delhi,” said a source.
Denying that buying a retailer will put additional pressure on the balance sheet of the group, which is already struggling with high debt, sources said it would not borrow funds for the acquisition, and “it is part of the overall strategy to realign the assets to deleverage the retailer”.
Future Group is negotiating multiple transactions to reduce its Rs 7,800-crore debt by March 2013. Chairman Biyani has plans to bring in new investors in hypermarket chain Big Bazaar, food chain Food Bazaar, sell stake in financial services company Future Capital, merge electronics retail chain Ezone with a Noida-based company, and get investors in agri business venture Future Agrovet, among others.
According to retail consultants, buyers of Big Apple may find the number of stores and locations attractive.
“Earlier, Big Apple had the first mover advantage. But today, a number of new chains like More, Reliance Retail, etc, have come into the picture. Now, if this deal has to happen, the owners will get a number of stores, locations and supply chain,” said Prashant Agarwal, joint managing director, Wazir Advisors, a business consultancy based in Gurgaon.
“If Future Group buys the chain, it will get discounted price. It has a much better understanding of supply chain than anybody else. If it is buying, it would be only for the number of stores and store locations,” Agarwal said.
The supermarkets segment has already seen a fair bit of consolidation in India. Small regional chains, unless backed by a large group, have limited funds to expand and scale up, and have been looking for joint venture partners or buyers.
Wadhawan Retail, which runs Spinach retail chains in the west, took over Delhi’s Sabka Bazaar and Home Store as well as the management contract of Maratha Stores in Mumbai. Similarly, AV Birla Group’s retail arm took over Trinethra stores in the South. Reliance Retail took over Adani Retail in Gujarat, but steep valuations in other states kept it away from acquiring more.
