Kishore Biyani may be finally heaving a sigh of relief, having gotten rid of some of the accumulated debt of Rs. 7,800 crore spread across his Future Group by selling off his Pantaloons fashion business to Kumar Mangalam Birla-led Aditya Birla Nuvo.
The deal marks the culmination of a long search for Biyani to find a willing buyer to pare his debt — a search that reportedly included a near-miss of a deal with the Mukesh Ambani controlled Reliance Industries four years back, according to a person close to the negotiations.
What reportedly stalled the deal from being consummated was the valuation. Biyani is believed to have demanded much more than what Ambani was willing to pay at that time.
"It was becoming imperative for (Kishore) Biyani to find a buyer and the company had at different points in time put each of its retail verticals on the block, hoping somebody will pay off the debt," said Harminder Sahni, MD, Wazir Advisors.
The Biyani-Birla deal may not open the floodgates for similar deals in organised retail.
“Modern retail in India is far from stabilising and you may see spurts of acquisitions but nothing big,” said Nikhil Chaturvedi, MD of fashion apparel firm Provogue.
He may have a point. Thus far, despite several big boys of retail bleeding cash, the sector has seen only one similar deal in living memory, when Vishal Retail, focused on smaller towns, sold out to a consortium of private equity fund TPG and Shriram Group for Rs. 70 crore last year.
“This is just one of the cases where a particular player was under much pressure. You might see one or two small acquisitions but nothing big will happen soon. If you look at the other big retailers, be it the Tatas, Reliance or RPG; none of them is looking to sell stakes,” said Arvind Singhal, chairman of industry consulting firm Technopak.
While the mothballing of the proposal to allow foreign direct investment in multi-brand retail may have hastened Biyani’s decision to sell off a majority stake in his apparel business, factors including high real estate costs and depressed consumer sentiment also played their part. Shoppers Stop saw its January-March net profit fall to Rs. 96 lakh, from Rs. 7.7 crore a year ago.
“There is a consumption slowdown as consumers wallet has shrunk adding much stress to retailers,” said Chaturvedi.
Even so, no one is willing to throw in the towel as yet till they get the desired price. And that, it would appear, isn’t happening anytime soon.