Kishore Biyani’s Future Retail averts loan default by hours, see how he had no option but to sell his company to Mukesh Ambani

The Tatva Staff August 25, 2020

Kishore Biyani-led Future Retail made $14 million interest payment hours ahead of its 30-day grace period deadline. The company in an exchange filing informed that it has made the payment of interest on 5.6 per cent senior secured USD notes due 2025.

Future Retail had missed its previous deadline of July 22, 2020, to make the interest payment. “In furtherance to our letter dated 22nd July, 2020, wherein we had informed about the grace period of 30 days for making payment of interest on above USD Notes. Today, we are pleased to inform that the company has made the payment of said interest for the half-year ended for an amount of USD 14 million on above USD Notes,” Future Retail informed in a BSE filing.

Future Retail shares fell 6.62 per cent to close at Rs 114.25 apiece on BSE, in a firm market. During the trade, the stock quoted day’s high of Rs 120 and a low of Rs 111.60 apiece. Future Retail stock price hit a 52-week low of Rs 61.05 per share in April this year, since then, the stock has risen over 87 per cent.

But how did Kishore Biyani come to this point where he is left with no option but to sell his company? Here are the main reasons:

Future Group has accrued heavy debt over the years. As of September 30, 2019, debt at Future Group’s listed entities rose to Rs 12,778 crore from Rs 10,951 crore as on March 31, 2019. He had the March deadline for repayment of some of these dues. But the Reserve Bank of India’s loan moratorium has provided a breather.
The market buzz about his inability to service debt began in mid-February, sending group companies shares crashing and triggering rating downgrades. Lenders sought more shares as collateral against loans to Biyani.
Coronavirus pandemic crippled the company’s operations, and shutdowns of stores and subsequent cash crunch forced it to default on debts.
Biyani became over-ambitious in core retailing and his focus on the neighbourhood format stores EasyDay, Nilgiris and Heritage backfired. He invested heavily on these ventures but they did not succeed.
His excitement about the group’s FMCG business, Future Consumer particularly proved infectious. He dreamt of scaling up the Rs 2,000 crore business to Rs 20,000 crore by 2021. But the company faced losses, resulting in 11.24 per cent decline in its profit to Rs 619 crore in the first nine months of FY20. The company has not declared full-year results so far.
The group has 990 EasyDay stores; it shut down 150 as of Q3FY20. Same-store sales growth of Future Retail formats was just 2.1 per cent in the quarter, but it stood at negative in Q4 as the coronavirus hit the economy hard.
Biyani hoped to attract loyalty in smaller format stores with a Rs 999/ year loyalty programme for a 10 per cent discount. The model didn’t work, say, analysts, adding that Biyani would have managed to pull off the small store format if the coronavirus pandemic had not happened.
Almost 35-40 per cent merchandise at Future Group formats were its own brands, which failed to attract customers. This led to heavy losses for the company.
Biyani, who is known to be the man of ideas, failed to implement many of them on the ground level.
Biyani’s struggle with debt has a long history. In FY12, he was in an identical Rs 12,000 crore debt soup, which forced him to sell his most valuable asset, Pantaloons Retail, to Aditya Birla group for Rs 1,600 crore. He also sold Future Capital to Warburg Pincus for Rs 4,250 crore.