Indian Economy News

Reliance Retail becomes second-largest customer of Future Consumer

  • IBEF
  • September 9, 2021

Reliance Retail has become Mr. Kishore Biyani's Future group's FMCG subsidiary Future Consumer second-largest client, accounting for over a quarter of the company's total sales.

According to the company's latest annual report, the retail arm of Reliance Industries Ltd acquired items worth Rs. 157.54 crore (US$ 21.41 million) from Future Consumer Ltd (FCL) in the financial year 2020-21, accounting for 26.8% of total sales of Rs. 586.15 crore (US$ 79.67 million).

According to the Rs. 24,713 crore (US$ 3.35 billion) agreement announced on August, FCL is one of 19 Future Group firms that will be combined with Future Enterprises and subsequently transferred to Reliance Industries' retail arm, Reliance Retail Ventures Ltd (RRVL).

Future Retail Ltd (FRL), the retail arm of the Future Group, tops the list with a purchase of Rs. 319.52 crore (US$ 43.43 million) for the fiscal year ending March 31, 2021. However, it was down by 87.9% when compared to FRL's purchase of Rs. 2,631.58 (US$ 357.71 million) a year earlier.

Only two companies - FRL and Reliance Retail Ltd - appear on the list of top customers, each contributing more than 10% of FCL's total revenue, with a combined contribution of Rs. 477.06 crore (US$ 64.84 million).

In FY21, FCL's income from product sales was Rs. 586.15 crore (US$ 79.67 million), with both firms accounting for roughly 81.3 % of total sales.

Reliance Retail, which came in first place on the list of major customers, accounted for 26.8% of total sales.

“With the exception of FRL and Reliance Retail Ltd, the Group's largest client, the Group has no substantial credit risk exposure to any single counterparty,” according to the annual report.

“At the conclusion of the reporting period, the concentration of credit risk linked to these two customers did not exceed 94% of gross trade receivables,” it stated, adding that “no other single client accounted for more than 10% of total trade receivable.”

FCL's board of directors authorised the merger of FCL and other group companies with Future Enterprises Limited in August of last year in order to facilitate the sale of the retail and wholesale operations to Reliance Retail for Rs. 24,713 crore (US$ 3.35 billion).

The acquisition is being challenged by Amazon, the world's largest e-commerce company, and a decision from the Singapore International Arbitration Centre is expected soon (SIAC).

Amazon agreed to buy 49% of one of Future's unlisted businesses, Future Coupons Ltd (which holds 7.3% equity in BSE-listed Future Retail Ltd through convertible warrants), in August 2019, with the option to buy into the flagship FRL after three to ten years.

Amazon had taken Future to SIAC for arbitration, and in October, the EA issued an interim judgement in favour of Amazon, prohibiting Future Retail from disposing of or encumbering its assets, or issuing securities to acquire any finance from a restricted party.

“Both FRL and Amazon have filed suit/challenged each other's position pertaining to the Scheme/EA Order in various Indian courts, and the issue is now pending with Indian Courts for disposition,” the statement added.

In addition, SIAC established a Tribunal in connection with the Arbitration Proceedings on January 5, 2021, and FRL has filed two petitions with the Tribunal, the first contesting the Tribunal's jurisdiction and the second seeking to have the EA Order vacated.

Future Group's claim is awaiting a tribunal decision.

“NCLT has heard the application pertaining to the Scheme and the intervention application submitted by Amazon and has reserved the order on the aforementioned application filed by Amazon,” FCL said in a statement.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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