To challenge Walmart-Flipkart, Amazon may target Birla’s retail chain of stores ‘More’

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Amazon, the global retail giant is gazing a stake in Aditya Birla’s retail stores named as “More”.  The accretion plans are a part of Amazon’s effort to acuminate its armory so that it can match up with the tough contest from the joint forces of its global rival and the Indian rival i.e. Flipkart. Amazon in conjunction with the private equity fund Samara Capital and Goldman Sachs will be forming a league for the acquisition of grocery supermarket and food chain More. The financial worth of this deal More at the enterprise value of $644.09- $715.66 Mn (INR 4,500-5,000 Cr). The main approximation is to float a separate company wherein Amazon will pick up 49% stake as the strategic partner.

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It is conjectured that the final structuring exercise is already on, ahead of the formal announcement at the end of this month. According to a report, Samara and Aditya Birla Retail Ltd (ABRL) — a private company owned by well-known businessman Kumar Mangalam Birla — signed an “exclusivity” agreement at the end of June for bilateral negotiations. Samara, amid market, India-focused fund, had then reached out to Goldman Sachs and Amazon to join forces. The Goldman Sachs Special Situations Group will be the likely vehicle within the investment bank for this transaction.

The restructuring is in line with Indian foreign investment laws, which state that foreign companies can only hold up to 49% in multi-brand retailers like More. However, the foreign companies generally overcome this barrier by creating holding articles in cash-and-carry retailing, where 100% transoceanic ownership is allowed. This, in turn, allows the Indian-owned groups and the entrepreneurs to run the front-end stores as their franchisees.  Antecedent to this, Amazon has picked up a 5% stake in the department store chain Shoppers Stop for INR 180 Cr in September last year. In the US this year, the company captured Whole Foods for $13.7 Bn.

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What’s In ‘More’ For Amazon?

Undeterred by continuous losses, More is the fourth-largest supermarket chain operator in India and could provide Amazon just the berm it needs to claim Walmart-Flipkart as well as the local retail leviathan such as Reliance Retail and Kishore Biyani’s Future Retail. The ABRL as of now runs 493 supermarkets and 20 hypermarkets under the More brand, integument more than 2 Mn sq ft of retail space, beyond the country. However, More lags behind the Future Group, Reliance Retail, and DMart in terms of the number of such outlets.

The company has a larger absorption and share of the organized retail trade in the southern states of Karnataka, Andhra Pradesh, and Telangana, where more than half its stores are situated. In FY17, the ABRL reported a 20% increase in sales to $600.52 Mn (INR 4,194 Cr), with net loss narrowing to $92.21 Mn (INR 644 Cr). However, the company had a debt of about $941.14 Mn (INR 6,573 Cr) on its books and financing costs amounted to $67.43Mn (INR 471 Cr) for the year.

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After significantly scaling down its operations, More achieved a store-level EBITDA (earnings before interest, taxes, depreciation, and amortisation) breakeven. The chain, which had adopted a ‘go-deep, not-wide’ strategy for its grocery retail business, was focussed on core markets such as Hyderabad, Bengaluru, Chennai, Pune, Kolkata, and the National Capital Region, which are located close to its distribution centres.

More counterparts Amazon’s plans to venture into food retail in India; the plan has hit a major embolus due to policy double-entendre, even though Amazon had received in-principle approval to endow $500 Mn in a subsidiary that was allowed to sell locally produced and packaged foodstuff, both online and offline. Now, by looking to achieve More, Amazon may finally be able to make some advancement in this direction, along with empower itself for the ecommerce blitzkreig in India.

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