Bharti Group decided to exit the Retail business in favor of Kishore Biyani’s Future Retail as it made sense to compete in an era of Digital shopping in India which is growing at a far faster pace. We’d like to present to you the obvious benefits of the marriage led by Increased sales, cost optimisation, lower cost of borrowing and larger tax benefits are main benefits of the merger.
The combined entity will have access to larger retail space with FRL gaining access to northern markets where it is not so strong. Presence across India with ~570 stores will aid omni‐channel strategy making logistics easier and cost efficient. No pressure to monetise non‐core assets (insurance, supply chain, stake in other group companies, etc), which having started giving returns now.
FRL will increase BRL’s gross margin form current ~15‐16% to 28% to match that of FRL by increasing fashion mix and reduce costs. Overhead corporate costs will reduce as BRL has a huge employee base, which FRL is not committed to absorb. FRL is planning to absorb store employees as it is, but will look in as to how it wants to integrate the corporate employees. Costs will be lower for the combined entity due to scale benefits.
The merger will help increase ECB financing avenues for FRL due to better credit rating. We are enthused by the merger with Bharti Retail and are positive on the split into retail and investment arms. However we await all approvals to come in before we build it into our forecasts.