Reliance Industries in focus on takeover of Future’s retail business

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Shares of Mukesh Ambani led Reliance Industries Limited (RIL) dropped over 1 percent in the early trade on February 28 after the company's retail arm took charge of Future Group's retail business.

At 09:36 am the scrip traded at Rs 2256.25 apiece on the BSE, down 1.21 percent, while Future Retail advanced 10.04 percent to Rs 50.40 apiece. On the other hand, the benchmark Sensex was down 883.63 points or 1.58 percent at 54,974.89.

Reliance Industries has stepped in to rescue Future Retail Limited (FRL), taking over the operations of its stores and offering jobs to its employees, even as the Kishore Biyani-led group is locked in a bitter legal wrangle with e-commerce major Amazon at several judicial forums over the sale of its business to the retail arm of the oil-to-telecom conglomerate.

Reliance Retail has started taking over operations of Future Retail stores such as Big Bazaar and replaced them with its brand stores, according to sources.

Future Group has been finding it difficult to finance its working capital needs. In a stock exchange filing on February 26, Future Retail said it plans to scale down its offline operations to reduce its losses in the coming months and instead focus on expanding its online and home delivery business.

The company has made a loss of Rs 4,445 crore in the last four quarters. Termination notices have been received for a significant number of stores due to huge outstanding, and it would no longer have access to such store premises.

In August 2020, the boards of Future Retail Ltd, Future Group companies, and Reliance Retail Ventures Ltd (RRVL) approved a Scheme of Arrangement for the transfer of Future Group’s retail and logistics business to RRVL on a slump sale basis for an aggregate consideration of Rs 24,713 crore.

At the time of the agreement, Future Group was in acute financial trouble. It had defaulted on payments to creditors and landlords for its leased premises. The amount outstanding to the creditors and the landlords exceeded a staggering Rs 6,000 crore.

Elara Capital: We upgrade RIL to buy from accumulate on revived refining margin, Petchem demand above pre-Covid level, Retail revival to pre-Covid level,Jio’s ARPU growth prospects and new energy investment visibility.

We up target price to Rs 2,981 from Rs 2,793, on raised new energy value to Rs 318 (from Rs 153), valuing at 1.5x equity-value/investment of USD 18bn investment.

We expect FY22-24E EBITDA CAGR at 18% for Digital Services (Jio) and 23% for Reliance Retail, and assume FY24E EV/E of 19.5x for retail, 17x for Jio and 7x for the oil to chemical (O2C) segment.

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