Mumbai: Reliance Retail Ltd, an arm of India’s most-valued company Reliance Industries Ltd, has integrated nine of its loss-making subsidiaries with Reliance Fresh Ltd, under a scheme of arrangement proposed to the Bombay high court.
The structure was approved by the court on 26 December and came into effect on 30 December, when the court order was submitted to the Registrar of Companies.
The integration will allow the company to “exclusively focus on one area of business and also have a greater capacity to raise finance and expand operations,” Reliance says in its proposal, a copy of which Mint has reviewed.
The nine companies merged with Reliance Fresh are: Reliance Agri Products Distribution Ltd, Reliance Food Processing Solutions Ltd, Reliance Home Store Ltd, Reliance Hypermart Ltd, Reliance Integrated Agri Solutions Ltd, Reliance Lifestyle Holdings Ltd, Reliance Supply Chain Solutions Ltd, Reliance Wellness Ltd and Reliance Concepts and Services India Ltd.
These companies, including Reliance Fresh, incurred a combined loss of Rs.360.47 crore on a revenue of Rs 3,380.16 crore in fiscal 2011, according to data culled from RIL’s 2011 annual report.
Other than Reliance Fresh, the retail business includes Reliance Digital, Reliance Trends and Reliance Brands. None of these are listed on BSE Ltd.
An email sent to RIL on Thursday remained unanswered.
An RIL official, speaking on condition of anonymity, said the restructuring was contemplated during a phase of consolidation at Reliance Retail on the basis that companies with similar operations should be merged into one.
According to the scheme of arrangement, the holding company decided to restructure the operations to “segregate similar trading and related operations and to house the same in a single company Reliance Fresh Ltd, instead of several companies carrying on the same business.”
It added that “the demerger would also achieve synergies and economies of scale by reducing duplication of costs and improving administrative and operational efficiency.”
Financial Express reported about the merger on 16 September and CNBC TV18 on 5 March.
India’s largest listed retailer by revenues, Pantaloons Retail India Ltd, executed a similar restructuring two years ago by bringing brands like Big Bazaar and Food Bazaar under a single entity Future Value Retail Ltd, thus separating the lifestyle and apparel retail arms as it looked to raise money and expand the business.
“The procurement requirements for many of the formats is the same,” said the same Reliance official. “Also, some of the entities that were merged used to provide back-end logistical support. So there were operational synergies.”
“Aligning formats with needs of business into one structure would help rationalise costs and give economies of scale as companies look at profitability,” said Rajan Divekar, senior director, Deloitte Touche Tohmatsu India Pvt. Ltd.
After forming Reliance Fresh, Reliance Retail passed a special resolution for an investment of Rs 4,500 crore on 31 December at its annual general meeting.
The restructuring follows the induction in July of top executives—Rob Cissell, former chief operating officer of WalMart China as chief executive-value formats, and Shawn Gray, former vice-president, Walmart China, as chief operations officer—to turnaround the retail business.
“The management changes and the restructuring signal a commitment of the parent to the retail business,” said Arvind Singhal, chairman of retail advisory firm Technopak India Pvt. LtdRIL expects integration to give the company greater capacity to raise finance and expand operations.
He added, though, that it was too early to decide whether such moves will result in any operational efficiencies as Reliance’s retail business is still young.