Reliance Industries' $3.38 billion deal to acquire Future Group's retail business pitches the conglomerate as an even more formidable force in India, making its retail arm more attractive to the potential investors it seeks to woo. The oil-to-telecoms group controlled by India's richest man, Mukesh Ambani, announced late on Saturday that it will acquire Future Group's retail and wholesale business as well as its logistics and warehousing operations.
The acquisition of Future Group's 2,000 retail stores and Big Bazaar grocery chain will help Reliance, which sells everything from groceries to electronics through 11,000-plus stores, to broaden its extensive reach across the country. But with Ambani set to sell stakes in Reliance Retail, the Future-Reliance deal makes it an even more attractive proposition for investors in a market that Boston Consulting Group expects to grow to $1.3 trillion by 2025.
"With this deal, Reliance's dominance in the Indian market increases further and the valuation that Reliance Retail will now command will be even more," said Arvind Singhal, chairman of retail consultancy Technopak Advisors. Reliance, which has raised a little more than $20 billion from global investors including Facebook Inc by selling stakes in its Jio Platforms digital business, has said it aims to attract investors in Reliance Retail over the next few quarters.
"We've received strong interest from strategic and financial investors in Reliance Retail," Ambani told shareholders at the company's annual general meeting in July. The acquisition will also help Reliance to extend its lead over its competitors, Singhal added.
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Mumbai-based Reliance is well known for its ability to win over customers with financial muscle and its breadth of offerings. Shares in its rivals reflected as much on Monday. Avenue Supermarts, which runs popular grocery chain DMart, fell as much as 5.4% while Aditya Birla Fashion and Retail closed 2.6% down and V-Mart Retail lost 4.4%.
Shares in Reliance rose in early trade but closed 1.7% down, in line with the broader market as a fresh border flare-up between India and China outweighed initial optimism from a further opening of the economy after coronavirus lockdowns. JioMart, the new Reliance e-commerce venture that offers free express delivery from neighbourhood stores, will also gain a leg-up from the Future Group deal thanks to a wider wholesale supplier base.
JioMart delivers groceries, apparel and electronics in more than 200 cities, challenging established online retailers such as Amazon's India unit and Walmart's Flipkart. "Reliance has essentially removed one competitor from the market and added Future's loyal customer base to its own portfolio," said Harminder Sahni, founder of retail consultancy Wazir Advisors. "It's a very serious challenge not just for Flipkart or Amazon, but for the likes of DMart, too."