Amazon.com is increasing its footprint in physical retail business in India.
According to a regulatory filing late on Thursday by Future Retail, a minority stake of 3.58 per cent in the company is set to be taken up by Amazon. Future Retail owns and operates over 1,500 retail stores in India and is the owner of the number of several supermarket brands such as the budget department and grocery store chain Big Bazaar.
According to the filing, Amazon has agreed to purchase 49 per cent stake in Future Coupons Ltd which in turn owns 7.3 per cent stake in Future Retail. That would bring Amazon’s stake in the Indian retailing company to 3.58 per cent.
The total value of the deal was not disclosed by either of the companies but the deal would give the largest e-commerce company in the world a stake in one of the largest retail chains in India that is engaged in the sale of wide range of products from clothes to fresh produce.
According to reports, Future Retail was valued a “substantial premium” to its existing market price by the deal. According to a report published in the Indian news paper The Economic Times, the deal valued the Mumbai-based physical retailer at about 430 billion rupees which is twice the current market cap of the company at $2.91 billion.
“The earlier expectation was Amazon would invest via a fresh issue, but now the money’s going to the promoter and the company is not benefiting,” said Deepak Jasani, senior vice president at HDFC Securities. “People had bought on expectation, and now are selling on the news.”
According to the deal, Amazon has been given the right for first refusal in case the owners of Future Retail Kishore Biyani, or his family choose to dilute a part or total of the 47.02 per cent stake in the company, either directly and via entities like Future Coupons that they control, showed the regulatory filing.
Earlier on Thursday, the United States based Amazon announced that it plans to launch its Amazon Fresh service in some of the major locations in Bengaluru, the so called tech hub of India. This would be the first attempt by the e-commerce giant to venture into the segment of fresh produce delivery in India which is viewed as a segment that is still relatively untapped and has immense growth potential.
A dozen up-market grocery stores under the banner, Foodhall, is also operated by Future Retail, in addition to more than 290 Big Bazaar outlets. Convenience store chain 7-Eleven Inc has also tied up with Future Retail to operate its stores in the country.
This is not the first time that Amazon has tried to acquire a stake in an Indian supermarket store operator. A joint investment in an entity that would give Amazon a stake in Indian supermarket chain More was announced by Amazon and Indian private equity firm Samara Capital last year. The American company is also a stake holder in Indian department store chain Shopper’s Stop.
(Adapted from Reuters.com)