Future Retail plans to increase the contribution of fashion and private labels and cut costs as a percentage of sales once it fully takes over the premium retail stores of HyperCity, the company told investors when it announced its quarterly earnings.
Retail czar Kishore Biyani announced in October that he was buying out HyperCity, a 19-store network of high-end grocery and merchandise retail, for ₹655 crore from competitor Shoppers Stop Ltd and its parent the K Raheja Group.
As part of the stock-and-cash deal, Future Retail will allot 93,10,987 shares at ₹537 each (aggregating to ₹500 crore) to the existing shareholders of HyperCity Retail, while also paying cash of ₹155 crore to take over the entire equity of the supermarket chain.
As per Future’s plans, HyperCity has the potential to increase its margins from 23.7 per cent to over 27 per cent by changing the product mix to make fashion and apparel more prominent. The investor presentation by Future Group said it wants to increase fashion’s contribution to overall topline from 16.8 per cent to over 35 per cent in just one year, with private labels (company-owned brands) accounting for 95 per cent of sales.
Future is also forecasting that it can cut HyperCity’s back-end costs from 5 per cent of sales to 0.5 per cent of sales. Additionally, it believes it can slash sales and distribution expenses from 1.8 per cent to roughly 0.9 per cent by leveraging on BigBazaar’s own brand recall among customers.
Future also sees synergies with customers with its existing technology and loyalty programmes and scale advantages by combining operations at the head office. “Besides fashion, a much stronger own and strategic brands portfolio across food and general merchandise will also drive margins,” the note said.
As part of the acquisition, Future Retail will absorb ₹256 crore of HyperCity’s accumulated debt. Despite this, the group sees the HyperCity acquisition as being “value accretive” from the first year itself.
HyperCity operates 1.24 million sqft across 19 operational stores (with 2 more coming up this fiscal) with significant potential of sales and margin upside with better product and brand mix and cost synergies with consolidated back-end operations, the company assured investors.
Net doubles
Future Retail reported net profit of ₹153.16 crore in the July-September quarter, more than double the ₹73.63-crore from the year-ago period. However, results still fell short of the street’s estimates.
In its investor presentation, the company said that its large-format stores Big Bazaar and fbb had entered six new cities, while more Easyday stores had been opened in existing clusters.
Source:-hindu