Why Aditya Birla Retails supermarket chain More is up for sale?

Primarily the group wants to sell its supermarket chain to reinvest the amount in Aditya Birla Fashion and Retail (ABFRL) to maintain its dominant position in the category. Also, because food and grocery is a low margin business, the group wants to shift
Merger & acquisition

New Delhi: India focused private equity firm Samara Capital plans to buy Aditya Birla Retail’s (ABRL) supermarket chain, More, for about Rs 2,500 crore. The PE firm is in advanced talk to complete the deal; a few industry experts with knowledge of the matter said this today.

As per the experts, primarily the group wants to sell its supermarket chain to reinvest the amount in Aditya Birla Fashion and Retail (ABFRL) to maintain its dominant position in the category. Also, because food and grocery is a low margin business, the group wants to shift focus on fashion category where it has Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL).

In May 2015, Aditya Birla Fashion and Retail Ltd (ABFRL) consolidated Aditya Birla Group comprising ABNL'S Madura Fashion division and ABNL's subsidiaries Pantaloons Fashion and Retail (PFRL) along with Madura Fashion & Lifestyle (MFL). After that, PFRL was renamed as Aditya Birla Fashion and Retail Ltd.

"This consolidation will create India's largest pure-play Fashion and Lifestyle Company with a strong bouquet of leading fashion brands and retail formats. This move brings India's #1 branded menswear and womenswear players together," Kumar Mangalam Birla, Chairman, Aditya Birla Group quoted saying then on the consolidation.

In 2007, Aditya Birla entered into food and grocery retail sectors with its acquisition of Trinethra Super Retail and thereafter expanded its presence across the country under the brand ‘More’ with two formats ― Supermarkets and Hypermarkets. However, as per experts, these acquisitions did not suit the company and hence now it is looking at further consolidation.

“In food and grocery scalability is huge but margins are thin. The Aditya Birla has been looking at selling the food and grocery retail operations for a while - the business had a debt overhanging from the acquisitions (Trinethra+Fabmall initially, and more recently Total), which kept dragging it down. The group's other retail business, Aditya Birla Fashion and Retail (ABFRL), also is cash-hungry but potentially has better margin prospects, and it is one where the group is a market leader in the country. A divestment of More could free up cash for the group for reinvesting in ABFRL to grow and consolidate its leadership position,’’ said Devangshu Dutta, Chief Executive at consultancy firm Third Eyesight.

According to ET report, the private equity firm has almost completed its due diligence with Aditya Birla Retail.

Email sent to both Aditya Birla Retail and Samara Capital remained unanswered till the time of filing of the report.

(The article will be updated)

 

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