Struggling Biyani to sell Big Bazaar in next move?

Debt-cornered Future Group founder Kishore Biyani is expected to make more restructuring announcements in the coming weeks.

After selling controlling stake in the fashion format Pantaloons, Big Bazaar may be handed over next, sources familiar with the developments said.

Future Value Retail may next demerge Big Bazaar, Food Bazaar and KB’s Fair Price from the holding company Pantaloon Retail (India) Ltd to generate cash to pay its mountain of debt.

The retailer is also near announcing stake sale in listed subsidiary Future Capital Holdings.

It may also be looking to offload stake in some joint ventures or businesses under listed entity Future Ventures Ltd, another person said.

Last week, Pantaloon Retail decided to demerge fashion format Pantaloons from the flagship company and sell a controlling stake to Aditya Birla Nuvo in the demerged entity.

On Thursday, the company announced it will change its name to Future Retail India Ltd. Over the last two years, Biyani had hived off Big Bazaar, Food Bazaar and KB’s Fair Price into a separate company,

Future Value Retail to unlock value, and an IPO was at that time an option being weighed.

Biyani had foreseen the need to demerge and align his businesses three years ago under two companies - one for fashion and another in retail and logistics. He had also proposed changing holding company’s name Pantaloon Retail to Future Market & Consumer Group Ltd.

With foreign direct investment (FDI) in multi-brand retail taking longer than anticipated and the options at hand few, Biyani is being forced to look at alternatives to reduce debt, a senior official of a corporate advisory firm said.

“The company can now look at only promoters with deep pockets for the bailout. It needs to do so urgently else it could become a defaulter,” this person said.

Kishore Biyani and Rakesh Biyani did not respond to text message requesting comment on demerger of Future Value.

The deal with Birlas is likely to reduce the retailer’s debt by Rs1,600 crore and free up working capital to the tune of Rs350 crore.

Biyani and his companies are knocking on virtually every door to unlock value in retail business as those in his non-core businesses such as Future Generali Insurance take time to fructify, this person said.

The Future Group’s debt on a consolidated basis had risen to Rs7,846 crore during the quarter ended December, its fiscal second quarter (Q2), led by interest costs.

For the core retail business alone, the debt stood between Rs5,200 crore to Rs5,800 crore.

Analysts say Biyani is also playing with a double-edged sword in restructuring.

“Pantaloon will still have Rs3, 600 crore of core retail debt after this transaction (stake sale to Aditya Birla Nuvo) which will take 8-10 months to conclude. In the interim rise in core retail debt during those 10 months needs to be monitored.

Secondly, divesting attractive profitable retail formats will pull down the valuations of residual businesses, in our view,” Prabhudas Lilladher research analyst Gautam Duggad wrote in his report last week.

“The management has decided to divest its more profitable format to raise money, Pantaloon Retail (India) Ltd will now be left with low-margin businesses (hypermarkets/ electronics/ home) which we believe will command a lower valuation and hence poses de-rating risks to the stock post the restructuring,” JP Morgan analysts Latika Chopra and Ritesh Gupta in their report dated May 3, 2012.

Biyani has still managed a good valuation with Pantaloons in the current retail scenario, head of a leading departmental chain said.

Food and grocery along with value apparel formats FBB (Fashion at Big Bazaar) and Brand Factory will now form the core of Pantaloon Retail’s business.

Biyani had earlier told DNA Money that the value apparel format FBB that has over 20 operational stores will be expanded. “We understand the value segment best. Nobody has got it right yet. We see good potential in the FBB format and will expand it,” he had said.

“Retail has not been viable in India; it is tough for every business player. For example, where land costs and rentals are as high as some of the international markets, the buying power is far behind. Promoters who have the ability to fund their businesses on their own will survive, whereas those expanding on borrowed money will find the going tough on account of high interest costs,” said Ramesh Tainwala, chairman, Planet Retail and president, Samsonite Asia Pacific and Middle East.