Mumbai: Kishore Biyani’s Future Retail Ltd, which has agreed to purchase HyperCity Retail India Ltd for Rs655 crore from Shoppers Stop Ltd, is expected to fold the acquisition into its largest retail network, Big Bazaar, analysts said.
The deal, announced on Thursday, will be beneficial to both Future Retail and Shoppers Stop, the analysts said.
For Future Retail, it means adding 19 stores, largely in prime locations in the top five metro cities of India, and 1.4 million sq. ft of retail space. For Shoppers Stop, it lets go of a difficult business that was yet to turn a profit and had nearly Rs400 crore of debt.
Analysts said HyperCity is likely to be rebranded Big Bazaar NXT. Future Retail runs 235 Big Bazaar department stores spread over 10.1 million sq. feet, according to its annual report. HyperCity stores have an area of 25,000-40,000 sq. ft, the typical size of a supermarket.
“We expect the deal to be a win-win proposition for both players," Abneesh Roy, senior vice-president at Edelweiss Financial Services, said in a note on Friday.
“FRL (Future Retail Ltd) will gain access to prime locations in metros (an issue due to slow mall development) and HyperCity’s private labels. The company can easily turn HyperCity profitable in the first year (-1.5% Ebitda margin in FY17) itself by enhancing apparel share (~35% gross margin) and pruning headquarter cost," he said.
An analyst with an equities broking firm noted that nearly 85% of Future Retail’s revenue comes from Big Bazaar.
“HyperCity will be rebranded as Big Bazaar NXT and it will see its own contribution from apparel rise from 16% currently to around 30%, the same as that of Big Bazaar," the analyst said on condition of anonymity.
“Big Bazaar has the maximum revenue contribution from apparel among the retail chains, and HyperCity definitely has a higher contribution from apparel than D-Mart does," the analyst said.
D-Mart is the country’s most profitable retail chain and has the highest market capitalization of Rs69,000 crore.