Future Group, Big Bazaar Valuation Can Come Down Due To Covid; Advantage For Reliance?

Future group of companies has in the past year witnessed a fall in sales as well as profits and as per the investment bankers, their valuation has taken a severe beating for the same period.

Rs 25,000 crore valuation of the Future group assets can be re-negotiate by Reliance Industries Ltd (RIL) as the pandemic is expected to affect sales for the next three quarters.

Decreased Revenues & Profits, Increased Losses
A loss of Rs 1,450 crore was reported by all Future group companies for the three months ended December 2020, while a combined revenue stood at Rs 3,228 crore.

The figures for the same quarter last year were a profit of Rs 250 crore and sales of of Rs 9,652 crore.

Due to the restrictions posed by lack of buyers, the forecast for 2021-22 shows grim numbers, which is worrisome for the group.

Analysts at Fitch Ratings have said the resumption of coronavirus in India will delay the effective refund of Future Retail Ltd (FRL’s), following a long-running weakness since the first quarter of the 2021 financial year.

This will affect the FRL’s slow consumer goods business, which is facing strong border-related restrictions. In addition, FRL access to credit remains problematic, as evidenced by the lack of new institutional grants under the “one-time restructuring” (OTR) program, it said.

Investors and investors said the RIL-Future agreement was based on lawsuits from Amazon, prompting the Supreme Court to disapprove of the transaction, thus delaying the closure of the agreement.

“There is a very good chance that the RIL would like to re-negotiate the transaction, remembering what happened recently,” said one bank employee.

Other Developments Around Acquisition
In August last year, Reliance Retail Ventures Ltd (RRVL), a subsidiary of Mukesh Ambani, RIL, announced that it was acquiring businesses that sell, sell goods, and store assets in the Future company for Rs 24,713 crore.

According to the plan, Future group companies such as FRL, Future Consumers, Future Supply Chain Solutions, Future Lifestyle Fashion, Future Brands, and Future Market Network were to be merged for the first time at Future Enterprises Ltd.

Later, the sales and sales force would be transferred to Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly owned RRVL company. At the same time, manufacturing and storage will be transferred to RRVL. However, while both parties submitted to the National Company Law Tribunal for approval for a merger proposal, Amazon, which was involved in the business of the promoter of the Future, moved the court and the acquisition is now pending.

But bankers say this could be a blessing in disguise for the RIL, which does not negotiate the deal again, considering the negative forecasts for the sale of group companies from multiple rating agencies (see chart).