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The world’s largest online retailer, the business newspapers Economic Times and Mint reported citing unamed people, is in talks with the private equity fund Samara Capital and the investment arm of Goldman Sachs to acquire More, India’s fourth-largest supermarket chain, operated by the Aditya Birla Group. The deal, according to the reports, will place an enterprise value of Rs 4,200-5,000 crore on the business. The development comes within days of U.S. retail giant Walmart Inc. completing its acquisition of India’s largest e-tailer Flipkart for $16.7 billion.
The opportunity is massive as India’s retail market is estimated to grow from the present $672 billion to $1.1 trillion by 2020, said a report by Assocham and MRRSIndia.com. Retail sales through super and hypermarkets, according to government-backed think tank India Brand Equity Foundation, are expected grow at 20 percent— twice the pace of traditional trade—over the next decade as the economy formalises.
Foreign retailers can own up to 49 percent in Indian peers. And they expect easier norms in future.
Walmart and Amazon are trying to set up a distribution system in India to prepare themselves when 100 percent foreign direct investment in multi-brand retail is allowed, said Lalit Agarwal, chairman and managing director of the multi-brand value retail chain V-Mart. As of now, these are just investments for both the American retail giants, he said.
The Aditya Birla Group doesn’t comment on market speculation, its spokesperson said to BloombergQuint over the phone. Emailed queries to Amazon India remained unanswered. Goldman Sachs and Samara Capital declined to comment over the mail and phone, respectively.
Aditya Birla Retail Ltd. operates a chain of 509 supermarkets and 20 hypermarkets across India under the ‘More’ brand. Kanishtha Finance & Investment Private Ltd. and RKN Retail Private Ltd., the holding companies of billionaire Kumar Mangalam Birla and family, own 60 percent and 32 percent stake in the venture, respectively.
Amazon’s plan to pick stake in the chain comes when Indian offline retailers are looking to boost their sales through e-commerce to build an omni-channel network. Billionaire Mukesh Ambani’s Reliance Retail Ltd., Kishore Biyani’s Future Group, and billionaire Radhakishan Damani’s Avenue Supermarts Ltd. that runs D-Mart stores are exploring different ways to take orders online and deliver at customers’ doorstep.
Amazon’s experience in selling grocery online will help. “Amazon has already set up Pantry service in India and its interest to buyout More is a step towards understanding the Indian consumer’s food and grocery buying habits,” Arvind Singhal, chairman of retail consultancy Technopak Advisors. “This move is a step in that direction.”
Agreed Govind Shrikhande, former managing director of the department store chain Shoppers’ Stop Ltd. in which Amazon acquired a 5 percent stake last year. Amazon and Walmart are also working to acquire data of Indian consumers, he said, which is a priority for businesses.
Birla’s Struggling Retail Business
The deal would benefit Aditya Birla Retail, which has been struggling with mounting losses and debt. According to the Economic Times, More tried to raise private equity capital at least twice before but failed. Samara Capital and Aditya Birla Retail, the newspaper had reported in June, signed an “exclusivity” agreement for bilateral negotiations.
Aditya Birla Retail has a negative net worth due to operational losses. Its debt as of April 2017 stood at Rs 6,455.8 crore. Although the retailer’s store count has increased since June 2016, the company resorted cost-cuts by renegotiating rents and reducing store size to narrow its operating loss, ICRA Ltd. said in a report.
The Aditya Birla Group so far has invested Rs 3,171 crore in the retail arm through a combination of equity and convertible bonds totalling Rs 2,870 crore, which were due for redemption in April 2018. Its management had indicated that the date of redemption could be extended or the bonds could be converted into equity, India Ratings & Research had said in a note in February.
But an acquisition will give the buyer a ready-made infrastructure in India’s lucrative market where rising incomes are expected to drive growth. And while Aditya Birla Retail will continue to incur losses in the medium term due to a high interest burden, India Ratings said it’s likely to achieve operational profit in this financial year.
Amazon, Shrikhande said, can’t afford to miss this opportunity to build an omni-channel business in the Indian market. Something that even Mukesh Ambani thinks is the “biggest growth opportunity”.
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