Indian retail sector could see further M&A activity as the sector is going through a consolidation face with businesses getting realigned, says Kishore Biyani Future Group chairman and chief executive, in an exclusive interview to Ashwin J Punnen of Financial Chronicle. He said the group is targeting to emerge as the Asia’s leading integrated consumer company with a trillion dollars in revenue
Q: Future Group stocks have done quite well on the stock exchanges in the recent months. Do you think the retail sector is getting a re-rating?
A: The group companies are doing well in terms of business and that is reflected in the shares prices. Investor perception about the sector is changing. The threat about the digital players is over exaggerated. The market is realising that. In fact all our companies like Future Retail, Future Consumer, Future Enterprises and Future Lifesytle Fashions have rewarded investors. Posting demerger and listing these companies have created value for the investors. Our fashion and food categories are seeing strong demand with the fashion segment growing rapidly and chains such as FBB, Central and Brand Factory are in good shape.
Our businesses are doing well. The fashion side of business has gained scale and size and FBB has now become a leader in the space it operating. Now our focus is on building the food business significantly.
Q: Do you think the retail sector in the country will see more consolidation?
A: There will definitely be consolidation as the sector is going through a structural change in terms of format and scaling up. There is also disruption caused by the digital players. The physical retail is growing and there is a layer of digital adding up to it, and both are converging into what is called as blended retail. We are buying companies. We recently bought Hypercity. We are keenly looking to acquire an e-commerce player in fashion side of business. Basically looking for a small player who is strong on technology, that can help them scale up faster on fashion side of business.
Q: How do you see the threat from the digital players?
A: If you see, digital retail sector in India is no threat to brick and motor format considering the low share of business and high cost of business. All are burning money. I agree that the next big trend is digitisation, but physical and digital are not different as layering of technology over physical will be happening. I think it is the other way round despite all the hype they have only 1 per cent share.
In fact I feel that online retail has a threat from us and it's time people realised that they are not a threat to us, as they don't even have 1 per cent business share and the cost of doing business is also too high.
Even internationally online players are buying traditional retailers. Alibaba is only buying physical retail, so is Amazon and therefore times have changed
I think online frenzy has somewhat faded away. Some retail consumers have moved to online platform such as Flipkart and Amazon for purchase of the daily use items. But is not big. I think, the fever of online shopping of consumer items by Indians have gone away.
I think online retail taking and physical retail converging will converge over the next ten years from now everything will converge completely. We are have been at the forefront of technological change and not missing any trend. China which people think is the most digital driven country has 82 per cent physical, America has 89 per cent physical model and similarly India too has huge potential for physical retail as online share is very less. We are called Future group because we look at the future and plan much before.
Q: You have recently unveiled a 30-year vision, Retail 3.0. How are you planning to achieve those ambitious targets?
A: We are looking to open 10,000 member-only Easyday stores to make it a Rs 1.5-trillion business opportunity by 2022. We aim to become Asia's largest integrated consumer retailer by 2047 with revenue of in excess of $1 trillion.
We are targeting 10,000 stores by 2022, and will have a store within 2 km of every Indian consumer assuming certain spends, this will be a Rs 1.5 trillion business opportunity for the group.
Q: What is the logic behind taking Future Supply Chain Solutions public at this juncture?
A: Future Supply Chain Solutions Ltd (FSCSL), a subsidiary of Future Enterprises and we are going public mainly to give an exit to private equity firm.
While private equity firm SSG Capital’s entity Griffin Partners will be selling about 78.27 lakh equity shares in FSCSL, representing up to 20 per cent of the paid-up equity share capital. Future Enterprises will sell 19.57 lakh shares, representing around 5 per cent stake. This purely a offer for sale to give exit to SSG who have come in two years back and have made substantial gains. The company is well capitalised and all the capital investment needs could be met from the cash on the books.
The 5 per cent we are selling will go to Future Enterprises. FSCSL is a well-capitalised company and there is a very marginal debt of about Rs 32 crore long term debt.
Here PE investor Griffin and the promoter group company will together sell 24.43 per cent to raise up to Rs 650 crore.
The company has fixed a price band of Rs 655-660 for the issue, which will offer up to 9,784,570 equity shares that has a face value of Rs10 each, and an offer-for-sale of up to 7,827,656 shares or 20 per cent equity by Griffin Partners.
Future Enterprises, will dilute up to 1,956,914 shares constituting 4.43 per cent of equity. Most of the proceeds from the issue will go to the Griffin while the rest to the promoter group.
Griffin Partners held 40 per cent in the company and post offer the PE will continue to hold 15.1 per cent.
Q: Can you talk about the plans for the logistics business?
A: We opened Future Supply Chain in 2006, and in a decade we’ve established distribution centres across the country. We offer third-party logistics to non-group companies, and our revenue share from both group and outside are almost equal.
As of September, the company runs contract logistics operations through 42 distribution centres, covering around 3.84 million sqft warehouse space and also operates 2 distribution centres for customers, covering 0.37 million sqft warehouse space.
Future Supply Chain had reported Rs 45.7 crore profit in FY17, up from Rs29.4 crore in the previous year on a revenue of Rs 561.2 crore which rose 9.6 per cent over the previous year.
We see tremendous growth in logistics business due to GST. And we have made investments terms of technology and capacity for the last few years to gain from the potential business growth. We have brought in the best technology in the world in our facilities.
We have adopted various technologies and automation in our business like effective sorting technology and radio frequency enabled warehouse management system.