MUMBAI: The shares of some Future Group companies reached the upper circuit on Monday after the announcement by Reliance Industries Ltd of the purchase of certain units of the mass market.
Future Retail Ltd reached 20% of the upper channel, Future Enterprises 5% the upper channel, Future Consumer and Future Lifestyle Fashions both reached 5%.
Shares of Reliance Industries Ltd rose 1.4% to ₹2.146.
RIL will acquire the retail, wholesale, logistics and warehousing units of Future Group for ₹24,713 crore. As part of the acquisition, Future Group will first merge certain companies carrying out the aforementioned activities into Future Enterprises Limited (FEL).
Reliance Retail and Fashion Lifestyle also offered to invest ₹1,200 crore in the preferential issue of FEL shares to acquire 6.09% of the stake after the merger, and ₹400 crore in a preferential issue of share subscription warrants which, upon conversion and payment of the balance of 75% of the issue price, will result in the acquisition by RRFLL of an additional 7.05% of FEL.
“This further strengthens Reliance Retail’s leadership position in the grocery and fashion segments, adding ~ 30% to the existing revenue base for core retail operations,” JP Morgan said in a report.
“Here we see multiple strategic advantages for Reliance: advantages of scale and synergy to add to the revenue / profit growth trajectory, leveraging the supply chain and infrastructure of retail for faster scale up of the JioMart / new commerce online platform and access to good outlets especially in Tier 1 / metropolitan cities where Future had a strong presence ” adds JP Morgan’s report.
Brokerage firm Kotak Institutional Equities believes that acquired companies have the potential to achieve a higher valuation multiple of 20-25X EBITDA as RIL is able to turn around its unattractive performance and put it on a downward trajectory. robust growth like its existing business.