Debt-ridden Future Group faces an uncertain future as three of its companies, Future Retail, Future Lifestyle Fashions and Future Supply Chain Solutions, stand on the brink of insolvency. All three companies have a total outstanding debt of Rs 6,474.98 crore. Of this, the total debt of Future Retail stands at Rs 4,876.88 crore, Future Lifestyle Fashions’ debt totals Rs 1,181.98 crore and FSCS’ debts amounts to Rs 416.12 crore.

Amazon terms Future-Reliance deal ‘unethical;

As per media reports, in 2020, the Future Group had signed Rs 24,713 crore deal with Reliance Retail, a subsidiary of Reliance Industries. The deal entail Reliance Retail would buy out the wholesale, retail and logistics businesses of Future Group. However, the deal was opposed by US e-commerce company Amazon as it violated a 2019 agreement signed with the company. In mid-2019, Amazon had acquired 49 per cent stake in Future Coupons, giving it an indirect 4.81 per cent holding in Future Retail Ltd (FRL).

Impending bankruptcy threatens Future’s future deals

Last week, RIL refused to takeover Future Group’s businesses, as FRL’s secured creditors voted against the scheme. Bank of India also filed a bankruptcy petition against FRL before the National Company Law Tribunal (NCLT) that would come up for hearing for admission on May 12.

A bankruptcy trial before National Company Law Tribunal (NCLT), threatens Future Group’s future deals. Group stakeholders in the group are not sure of recovering the $4-billion debt from the company. The recent acquisition of important FRL stores by Reliance also thwarts Amazon’s ambitions to become a key player in India’s retail market.

Meanwhile Amazon has asked the RBI to undertake a forensic audit against Future Retail for the past three financial years to investigate alleged fraud by the company. Amazon said that Future Retail, its promotors and directors have defrauded by alienating over 945 store premises to Reliance Retail. It has also alleged that Reliance Industries has committed fraud while the lenders have failed to take cognizance of it.

“It is incumbent upon RBI to conduct a thorough investigation into the fraud committed by FRL, its promoters, directors and key managerial personnel (KMPs). Accordingly, it is requested that a forensic audit be conducted for FRL for the past 3 financial years as the RBI is empowered to inter alia under the RBI Fraud Circular, financial documents, and framework agreement,” Amazon has said. Amazon has also alleged Future Retail has been making contrary statements in its annual reports, and in the courts on whether it was facing a liquidity crisis or not. Amazon alleged that in its Annual Report for the financial year 2020-21, Future Retail stated that it did not face any liquidity crisis.

Liquidation may erode banks’ share in the company

Vivek Parti, Professional, Insolvency Resolution notes, with public sector banks rejecting the scheme of arrangement proposed by Reliance, Future Retail now faces liquidation under the Insolvency and Bankruptcy code. As per a Business Today report, to recover their dues, banks will have to fight it out or else they may get less than expected as the case moves to the IBC, opines Mahesh Singhi, Founder & Managing Director, Singhi Advisors, an M&A advisory firm.

Singhi advises lenders to have an alternative plan to recover their dues. Being a perishable industry, retail is an extremely challenging business to run, he says. The company has lost most of its employee and inventory. Besides, it does not own the property it operates on, he adds. Its insolvency may be just nine to 12 month away, he adds. As shareholders values continue to erode at break-neck speeds, banks will have to find a solution to minimize the extent of damage caused to them, opines Singhi.

Indian apparel makers revenues have been growing 16-18 per cent on account of Sri Lanka-China crisis and a robust domestic demand. In 2021-22 fiscal, India’s apparel exports grew over 30 per cent while ready-made garment (RMG) shipments totaled $16018.3 million. India exported most of its textiles and apparels to the US, the European Union, parts of Asia and Middle East. Amongst these markets, the US held the maximum share of 26.3 per cent for knitted garments, followed by UAE 14.5 per cent and UK 9.6 per cent.

Of the total global MMF and madeup export market worth $200 billion, India’s share was $1.6 billion, accounting for only 0.8 per cent of the total global market for MMF, says recent Apparel Export Promotion Council stats.

Rupee depreciation and incentive schemes to drive exports

As per an analysis based on 140 RMG makers by CRISIL Ratings, factors like the rupee depreciation and continuation of export-linked incentive schemes are likely to drive India’s exports, leading to a revenue growth of around Rs 20,000 crore. India’s MMF exports are expected to grow 12-15 per cent, despite the higher base of last fiscal, says Anuj Sethi, Senior Director, CRISIL Ratings.

Disruptions in factory operations long with port congestion will dampen China’s export growth in dollar terms. However, domestic MMF demand is expected to grow over 20 per cent.

RMG operating margins to improve to 8.0 per cent

In fiscal 2022-23, the operating margins of RMG makers are expected to improve by 75-100 basis points year-on-year to 7.5-8.0 per cent though they will continue to be lower than pre-pandemic levels of 8-9 per cent. With prices of key raw materials such as cotton yarn and man-made fibre rising 15-20 per cent, RMG makers will be able to partially pass on input price hikes to customers as demand rebounds and operating margins improve.

The largest availability of raw materials alongwith world’s second largest spinning and weaving capacity enabled the India to grow domestic exports by 95 per cent from January-September 2021, says Narendra Goenka, Chairman AEPC.

Fall in cotton import duty to boost apparel exports

India’s apparel exports are expected to rise further as import duty on raw cotton reduces from the current10 per cent, opines A Sakthivel, President, Federation of Indian Exporters’ Organization. Prices of yarn and fabrics will soften, he adds. Moreover, signing of CEPA with UAE and Australia will also accelerate India’s share in apparel exports in the US and many countries. India’s textile and apparel exports to Australia have grown by 2 per cent over the last five years and reached $6.3 billion in 2020. India’s share in Australia’s total textile and apparel imports is likely to rise further with the signing of Economic Co-operation and Trade Agreement (ECTA) between India and Australia.

Leveraging the China Plus One strategy

India’s textile industry has been growing on rising home textile exports and favorable geopolitical undercurrents encouraging countries to adopt the China Plus One sourcing strategy. Recent geopolitical developments such as COVID-19 have intensified the need for global diversification for these countries, as per a CII-Kearney study. To benefit from growing development, India needs to grow exports by $16 billion, urges the study.