admin
May 5, 2012
Vishal
Krishna, Businessworld
Bangalore,
5 May, 2012
It is not just a marriage of convenience; there could be love involved, too. Aditya Birla Nuvo (ABN), with annual revenues of $4 billion, a mini-conglomerate within the $35-billion Aditya Birla Group, has acquired a portion of Pantaloon Retail India’s (PRIL) lifestyle business.
Eighty-six Pantaloon fashion retail stores will form part of a new entity, controlled by ABN, which will be automatically listed on the BSE and the NSE. A Future Group official says that ABN has acquired a minority stake by subscribing to Rs 800 crore worth of convertible debentures, which will be converted into equity when the new entity is formed. ABN will make an open offer to PRIL’s shareholders; ABN will eventually have 50.1 per cent stake in the new firm.
ABN has also paid another Rs 800 crore to service the debt of PRIL. Both groups have yet to decide the swap ratio (JM Financial acted as advisors to the deal) that will determine the shareholding pattern in the new entity. The word on the street is that PRIL will own 25 per cent in the new entity and will manage the operations of the 86 stores whose revenue is expected to reach Rs 1,700 crore for the financial year ending 30 June 2012.
For the Future Group, the happy marriage means that Rs 1,600
crore out of the Rs 5,256-crore debt will be wiped off PRIL’s
balance sheet, giving Future Group chairman Kishore Biyani a breather.
“This is the first of the many steps to reduce the debt
of the Future Group,” says Devangshu Dutta, CEO of Third
Eyesight, a retail consultancy.
But is the union good for ABN, too? ABN’s business generates
$4 billion in revenue, but its lifestyle business makes only $400
million. The new entity should change that for the better. ABN’s
Madura Fashion is the largest premium-branded apparel player in
India, with brands such as Louis Philippe, Van Heusen, Allen Solly
and Peter England as part of its stable, and retails through 1,082
exclusive brand outlets, apart from being sold in more than 1,250
departmental stores and multi-brand outlets.
ABN has a distributorship tie-up with leading brand Esprit and it retails international brands under ‘The Collective’, a luxury store. Access to PRIL’s network will double ABN’s revenues and make it the single largest chain in India. The combined revenue of rivals Shoppers Stop (50 stores) and Lifestyle (40 stores) will be about that of the new ABN/Pantaloon entity.
The buyout will give ABN access to markets where it has no presence: tier-II and tier-III towns, where the future exponential growth of the retail sector is expected to come from. So why did PRIL sell a stake in a venture that was highly profitable for the Future Group? “The rising debt levels of Pantaloon have been affecting the growth of the group,” says D.K. Aggarwal, CMD of SMC Investments and Advisors. “They have been paying about 60 per cent of their revenues as interest costs.”
Other analysts call this a clever move by ‘Mr Retail’. PRIL’s Rakesh Biyani and Kailash Bhatia will continue to run operations; a “Fashion Council” with the best talent from Madura Fashion and Future Group will advise the new firm on leveraging its strengths. And with the financial muscle of Aditya Birla Group behind him, Kishore Biyani’s legacy remains intact.
(This story was published in Businessworld Issue Dated 14-05-2012)
admin
May 3, 2012
Vishal
Krishna, Businessworld
Bangalore,
May 3, 2012
Walmart
may be the largest company in the world in terms of revenues,
but its global e-commerce websites are lagging far behind. Walmart
e-commerce is facing tough competition from local e-commerce firms
as well as Amazon, the largest e-commerce website in the world.
Walmart’s websites in China, UK, Brazil, Mexico, Canada and
the USA are all sitting isolated and need a focused strategy to
deliver a global view for Walmart. Consolidating all that data
of shoppers is becoming more complicated and is not giving Walmart
a full view of what its customers want on an e-commerce site.
“We are creating a global platform so that these e-commerce
websites can be integrated, there will be one world view for all
our shoppers and we will cater to local needs too,” says
Anand Rajaraman, Senior Vice President Walmart Global E-commerce.
He says that this strategy was to enable better consumer experience
and ensure real time knowledge sharing with different countries.
This platform is going to be built from scratch in Bangalore and is going to have over 200 people working on it by the end of the financial year 2012-13. This will also be the first time that Walmart is ramping up its R&D operations through Walmart Labs. This is a clear signal to take on Amazon because not only has Amazon entered Indian operations in the form of a market place called junglee.com, but its R&D centre in India has over 500 employees. “This should not be a problem for Walmart because they have all the experience for the last three years by working with Bharti,” says Devangshu Dutta, CEO of Third Eyesight, a retail consultancy.
Coincidentally, Anand Rajaraman sold junglee.com to Amazon in the late 1990s for $250 million and is now involved with Walmart after it acquired his analytics company called Kosmix for $300 million.
Why a global platform? “The global platform is going to be created because we can easily ramp up in emerging markets as part of our new strategy,” says Jeremy King,” Chief Technology officer of global e- commerce.
Analysts say that Walmart’s e-commerce revenues are small because the numbers add up to less than 3 per cent for a $425-billion company. This new strategy is being created for taking on the likes of Amazon which is the largest online retailer with revenues of $34 billion, and other home grown e-commerce retailers in emerging economies. Walmart’s e-commerce revenues are $10 billion, which is larger than any retail business in India. FDI rules do not permit Walmart’s e-commerce unit to come in to the Indian market, but its global platform can be ready because Walmart’s back-end work of tying up with suppliers is already on through the cash and carry business. It has a 50:50 JV with Bharti retail, although 100 per cent FDI is allowed in B2B operations.
Walmart has created a business unit called Global.com to study and understand how its products could be bought online globally like Amazon. “We will focus on mobile apps because shopping is becoming social and people are collaborating real time. Our apps are in the top twenty lifestyle app downloads on the Apple store,” says King. He adds that new platform will help Walmart analyze inventory, in shop research and allow shoppers to access Walmart anywhere, anytime. Cloud computing to scale up operations is being implemented at Walmart’s own private cloud; it runs its own data centre.
“In any e-commerce business it is important to offer a large assortment of products at the right price and deliver it efficiently,” says Pinakiranjan Mishra, Partner at Ernst and Young. He says that e-commerce was becoming firmly rooted in India as a big business and when FDI opened up, big global brands will be eager to set shop in India. Today Indiaplaza.com and junglee.com are market places that have tied up with 1000s of vendors. “India has so many vendors that one can tie up with for the e-commerce business, global brands will wait for FDI to open up while they develop their local sourcing arms,” says K Vaitheeswaran, CEO of indiaplaza.com.
Analysts estimate the e-commerce business in India to be around $7 billion and growing at 50 per cent year on year, but markets like the USA and Europe have an e-commerce market of over $200 billion each. Therefore for a Walmart with only $10 billion revenues from its online business, it is important to scale up, as brick and mortar retail is showing only single digit growth. “India is going to be helping the global R&D business for e-commerce,” says King of Walmart.com. While Walmart closely watches emerging markets and the way local businesses function, they would be treading carefully.
The homegrown online businesses in China have given American brands such as Amazon a run for their money. Similarly, India seems to have the likes of flipkart.com use the Amazon model to become big in India. But Walmart has the cash in an age when countries struggle to repay foreign debt. It would certainly take on the likes of Amazon, may be the battle for India could be the one to watch out for.
Tarang Gautam Saxena
May 1, 2012
India’s economic growth may seem to have taken a dip last year with India’s GDP growth falling to 6.9% for 2011-12 from 8.4% the previous year. But that has not translated into a slower entry of international brands entering the market. There already exist over 200 international fashion brands in India with more than a quarter of these operating predominantly in the footwear and accessories category. Bata may be an exception, having been present in India for over eighty years, but since the 1980s international brands have been trickling in, and the numbers really picked up in the 2000s.
Since 2006, the number of international shoes and accessories brands entering the market has increased 4-fold. The year 2012 has already ushered in international brands such as Claire’s (jewellery), Christian Louboutin (shoes) and Kelme (sports shoes and apparel) within the first three months, while more brands are there on the anvil. While India is expected to grow at 7.6% this year, the pace of growth of international brands may just as well surpass this relatively slow growth rate.
Business Environment & Choice of Operating Structure at Entry
The choice of entry strategy is a key decision for brands entering new markets. This decision hinges on internal and external business factors including the degree of control that a brand wants to exercise on the brand, the product and the supply chain, the market potential, the internal capabilities and strategies of the international brand in their home market or other overseas markets and the government policy pertaining to foreign investment in that particular market.
In the late 1980s and 1990s the Indian retail market was largely unorganized with few national Indian brands and an under developed modern retail network. Import duties were high and there were many investment barriers for foreign brands. The early players entering the market in the shoes and accessories segment were primarily sports footwear and equipment brands targeting the Indian men. Bata was perhaps a lone brand that offered footwear for the entire family.
The international brands that entered the Indian market at that time largely opted to license the brand to an Indian partner that allowed the international brands to gain quick access to the Indian market with a minimal investment. Brands such as Lotto, Hush Puppies and Puma chose to license the brand to a partner based in India. The Indian partner invested in sourcing or manufacturing, merchandising, branding, marketing, distribution, and even retail while the international brand received royalties and other fees for lending its brand to the market. However, this left the brands with very little control on their growth path in the market. A few formed joint ventures (Reebok, Adidas) or entered into licensing and distribution tie-ups (Nike, Umbro) with Indian partners to leverage the partners’ manufacturing or distribution strengths.
Over time, certain brands decided to move their existing entities (licensed, franchised or joint venture) into wholly owned subsidiaries. These brands may have invested a disproportionate amount of management time and effort initially but the investment has paid off well. Reebok is today the largest international sports goods brand in India with a reported turnover of Rs 600 crores last year, followed by Adidas, Puma and Nike.
The 2000s saw a rising interest of women’s footwear and accessories brands in the Indian market as the market further evolved. Many of these players operated in the luxury segment appealing to a limited few. There was a distinct shift in the choice of entry strategy and franchising emerged as the preferred entry route for the brands stepping afoot in the Indian market testing the waters. The successive lowering of import duties for fashion products resulted in imports being a less expensive sourcing option and the realty boom brought investors in retail real estate that were ideal franchisees for the international brands.
At the same time the count of sports footwear and accessories brands also continued to grow. This product category was primarily distributed through agents, regional distributors and through a combination of exclusive branded outlets, multi-branded outlets and large department chains at the retail end. By 2003, franchising became the preferred launch vehicle for an increasing number of international companies, including Accessorize, Aldo, New Balance and Nine West, while only a few chose to enter through licensing.
In 2006 the Government of India reopened retail to foreign investment (allowing up to 51 per cent foreign direct investment in “Single Brand” retail). Later the Indian government also announced the possibility of gradually increasing the FDI limit in single brand retail from 51% to 100%. The possibility of having part or an eventual complete ownership encouraged brands, seeking a more controlled business in India, to use joint venture as the launch vehicle. International footwear and accessories brands such as Clarks, Fendi, Kipling, Pavers England either entered India by forming joint ventures or shifted their existing structures to joint ventures.
Thus the last decade saw the international brands largely using the franchising route or forming joint ventures to create a presence in the Indian market. While franchising became the choice for risk-averse brands, those that were convinced about the longer-term value of India took the more committed ownership route.
While the government has recently allowed 100% foreign direct investment in single brand retail, it has placed the rider that 30% of the sourcing would happen from small and medium enterprises in India. The lack of clarity as to what this actually means, as well as the need to set up an adequate sourcing presence in India has meant that most brands have not pushed their Indian presence into a 100 per cent ownership structure.
Of course, for a few brands India may be the key source for their entire range and given our government’s manufacturing policy they may already have an existing small and medium enterprise vendor base. These brands may go for complete ownership if India is a strategic and important enough market and sourcing base in their global portfolio.
One such international company is Pavers England, a premium leather footwear brand from UK, which has recently approached the Indian government to allow the retailer 100% foreign direct investment in single brand retail. The group has been present in India since 2008 through a joint venture and currently sells the brands, Pavers England and Staccato in India.
At the moment, 35% of the international brands are present through an ownership business model, either through a wholly owned subsidiary or a joint venture with majority stake which reflects the growth of confidence level of international brands in the Indian market.
Changeovers, Exits & Re-launches
The road to success in the Indian market has not been an entirely smooth ride even for the large brands that are successful globally. Brands that have invested in understanding the psyche of the Indian consumer, adopted flexibility in market approach and displayed persistence, have been paid off handsomely and some of these have even exceeded domestic brands in size and reach. Some others have had to reconcile to being niche operators.
Some brands have shifted their strategy and changed their operating structures and even partners in response to the dynamic market conditions and the increasing importance of India’s contribution in their global business. Some brands that may not have achieved success in their initial stint and have exited the market, only to return with renewed strategy, energy and rigour and more suitable business models and or partners. There are plenty of examples of international brands that have changed over their operating structure, partners, exited the market and yet re-launched again.
Puma, for instance, had first entered the Indian market through a licensing arrangement with Carona in the early 90s to sell sports footwear, but the agreement was revoked in 1998. The brand entered the market again in 2002, this time with a licensing / distribution tie up with Planet Sports. The company positioned itself as a lifestyle brand this time with a wider product range. While the Indian partner was responsible for sourcing of apparel and accessories, distribution and retail, Puma ensured that the quality of footwear being sourced from India was upto mark and also ensured brand consistency throughout all marketing, product and retail efforts. To the international company, India occupied an important position in Puma’s global as well as Asian business. With an aim to strengthen the brand’s position further in the country through greater control over its India operations, Puma set up a wholly owned subsidiary in 2006 subsequent to the end of its licensing tie-up.
Another early entrant, Lotto Italia, re-entered the market in 2005 through a license deal after a gap of ten years. More recently, in an effort to move to the higher growth trajectory, the brand has changed its partner last year and the brand is looking for aggressive growth by planning to grow its network of exclusive stores across India from 50 at the moment to 200 in the next three years. The brand is also undertaking various marketing activities to gain high visibility and connect with the consumers. Recently, the brand has been reported to be working on launching cricket equipment in India in the next six months, which will be a pilot run for the global launch of the product as well.
The renowned Italian brand Gucci was brought into India through a franchise agreement with Murjani Retail in 2006. However, the global economic crisis and its resultant impact on the Indian market, led a shift in the Indian partner’s focus from luxury to premium brands. The franchise agreement with Murjani Retail was terminated and replaced with a new franchisee, Luxury Goods Retail, in 2009. Simultaneously, the international brand Gucci, converted this new franchise agreement into a majority owned joint venture for more control over the Indian operations.
Clarks, a British footwear brand, first entered India in 2005 through a distribution agreement with an India partner and also set up a few exclusive stores across India. It withdrew from the market due to below-par performance. However, after researching and understanding the Indian consumer further it re-entered the market 2011 through a joint venture with Future Group. Now Clarks is offering differentiated products across segments (men, women and kids) with lower price points and is focusing on high brand visibility through exclusive branded stores to break through the clutter. India is an important sourcing base for this company and it is also drawing synergy for its global product range from the products being developed as per the tastes and preferences of Indian consumers. From the new partner the brand hopes to leverage their experience in real estate and their understanding of the Indian consumer.
The Italian fashion brand Miss Sixty exited the market and their partnership with Reliance Brands in 2007. The brand re-launched shoes and accessories in 2009 through another franchise agreement and currently the brand has three stores across Delhi, Mumbai and Chennai.
The German lifestyle brand, Aigner that entered India in 2004 is perhaps a lone brand that has not yet re-entered the market since its exit in 2010, but it will be no surprise if it returns to India again at an appropriate time.
The strategies of international brands have changed due to various factors. Many of the changes in strategy and structure have been due to the actual performance in the market falling well short of expectations and projections. Perhaps, the changes in partnership could have been moderated had the companies been more careful in questioning the criteria and motivations for choosing partners. (This is discussed further in detail in our earlier articles, relating to the International Fashion Brands in India). In choosing their partners, the international brands need to carefully identify what role they wish to play in the market, and what capability and capacity they need operationally to create the success that can truly root a brand into the rich Indian soil.
International Brands: Here to Stay
India is at the early stage of consumer growth and is emerging to be a strategic market to many international brands with a promising market potential. The market conditions are much better and the barriers to entry much lower for the international brands as compared to even the last decade. The overall confidence of the international brands in the potential of the Indian market is highly positive.
So far, the shoes and accessories market has been led by international sports and outdoors brands. Though there are already over a dozen international brands present in this category, we can expect to see more entering this category. The recently announced joint venture between Wolverine and Tata International to strengthen the presence of CAT and Merrell brands in the Indian market and to possibly introduce other brands from the portfolio shows that this segment is far from saturation.
Indian women are emerging as another important segment, drawing more footwear and accessories brands into the market and expansion of the existing brands through stand alone stores for women. There is still open ground available in the premium and value segment of women’s accessories for the growth of both international and national brands.
Over the last decade, the pace of growth of a brand has accelerated; the time needed for a brand to scale up has shortened. The modern retail network has expanded and there are an increasing number of distribution channels today, even as existing players such as Bata and new ones such as Reliance Footprint offer growing platforms for international accessory brands to plug into.
The online channel is further emerging as an important route to reaching the consumers especially in the tier II and III cities where demand exists but there is low accessibility due to inadequate distribution network. Vans Shoes, an international footwear brand from USA, has tied with online portal myntra.com to widen its consumer reach having entered India last year through a joint venture with Arvind Brands. The online channel also offers the possibility of “pilot runs” and test marketing for brands at the early stage.
Going further, not only do we see more brands customizing their product range for Indian tastes, but India also becoming the testing ground and an inspirational source for global product range.
International brands clearly are here to stay. The more successful brands will be the ones that take pragmatic view of what is achievable and make course-corrections to their India business model as often as required.
admin
April 30, 2012
Meghna
Maiti, Yassir A Pitalwalla, Financial Chronicle
Mumbai,
April 30, 2012
Kumar
Mangalam Birla has done what Mukesh Ambani could not. Birla has
sewn up a deal to acquire a 50.01 per cent in Pantaloons, the
retail format of Pantaloon Retail India (PRIL). For this, Pantaloons
will be demerged from PRIL.
It is a two-stage deal involving a Rs 800 crore cash payment, assumption of a similar amount of debt and an open offer for a minimum 26 per cent to shareholders of the demerged Pantaloons format-owning company.
The Future group on Monday said it intended to demerge the Pantaloon retail format from the listed PRIL. The demerged entity will be automatically listed in the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), said a press release issued by the Birla group.
Officials associated with the deal told Financial Chronicle that the Pantaloons format was being valued at over Rs 2,600 crore. PRIL’s market capitalisation was Rs 3,895 crore at the end of Monday.
“It is a good deal for the shareholders. Since a sizeable business is going out of the group, there could be a dent on future numbers,” said Sangeeta Tripathi, senior equity research analyst at Sharekhan.
But Kishore Biyani of PRIL will still retain a stake in the fashion retail business through formats such as Central, Big Bazaar and Brand Factory, among others.
Devangshu Dutta, CEO of Third Eyesight, a specialist retail consultancy firm, said, “Certainly, by hiving off part of the company, the Future group will pay off debt and ease the load on it to an extent.”
The demerged unit is expected to have sales of Rs 1,700 crore in the year to June 30 this year. It is also expected to expand its network by around 20 stores a year.
In contrast, the Aditya Birla Nuvo (ABN) subsidiary Madura Fashion & Lifestyle recorded revenue of Rs 2,145 crore in calendar 2011. A Future group press release said that Nimesh Kampani’s JM Financial acted as the sole financial adviser to the transaction.
“This is a very interesting combination and shows consolidation is happening in the industry. The cash infusion will help PRIL focus on the food business and make its balance sheet healthy,” said Nikhil Chaturvedi, managing director of Provogue (India).
“The retail business is very time consuming and needs deep pockets. The deal shows that Biyani must have taken a decision to become debt free. The Birlas will have better controls and will be able to extract better margins from this business,” said Dilip B Jiwrajka, MD of Alok Industries which controls the H&A chain of apparel stores.
The deal brings together the first generation Biyani family that’s behind India’s largest organised retailer and the Birla family, which runs the $35 billion Aditya Birla group. It is a win-win transaction for Birla who gets the most profitable fashion retailing business of PRIL. As for PRIL, which had a debt of Rs 4,200 crore, it gets to reduce its net debt load by Rs 1,600 crore to Rs 2,600 crore.
“This deal is positive for the industry as Madura has experience in fashion retailing. This will be a good extension for the Birlas, as they are putting in money in an established store chain. The Birlas will also be able to push their own brands through these stores,” said Asim Dalal, managing director of The Bombay Store.
“PRIL has always been vocal about debt-restructuring. This is a good step towards re-aligning the organisation,” said Saloni Nangia, senior VP of Technopak Advisors.
ABN will pay PRIL Rs 800 crore in lieu of debentures, which will get converted, into equity of the demerged entity. PRIL, in turn, will transfer the net assets of the Pantaloons format business via a court scheme of arrangement with debt of Rs 800 crore and Rs 800 crore convertible debentures.
ABN will make an open offer for a minimum 26 per cent of shares in the de-merged entity so as to ultimately hold a minimum 50.01 per cent of the spun-off unit post conversion of the debentures.
Biyani, who founded the Future group and is its CEO, said in a statement, “We are honoured to be associated with India’s pre-eminent and among the most respected business houses. We always had a great admiration and respect for the businesses developed by Madura Garments. This marks a unique coming together of brands and enterprise that will create significant value for customers, suppliers and all stakeholders.”
“There are massive synergy benefits between Pantaloons and Birla’s Madura Fashion & Lifestyle. The combined business will cater to the entire value chain of consumers from the value conscious middle class to top end customers,” said a senior official involved in the deal who requested anonymity as both Pantaloons and Aditya Birla Nuvo are in a silent period ahead of their results announcements for the quarter ended March.
Biyani started his retail sojourn in Kolkata with the first Pantaloons store in 1997 and the format has been very close to his heart. It operates a chain of 65 stores in 35 cities and another 21 Pantaloons factory outlets, making it one of the biggest fashionb retailers India. It has a combined retail space of over 2 million sq ft.
Madura’s brands Louis Philippe, Van Heusen, Allen Solly, Peter England, People and The Collective together have retail space of 1.6 million sq ft in the country. “The de-merged entity will hold the rights to the Pantaloons format for eternity and the valuation takes into account the brand valuation too,” said the man privy to the details of the deal.
“A fashion council comprising Rakesh Biyani, CEO of the retail business of the Future group, Kailash Bhatia, head of the fashion business of the group, and Pranab Barua, CEO of apparel and retail of the Aditya Birla group will form the council that will aid and advise the management of the de-merged entity,” he said.
“Rakesh Biyani and Bhatia will continue to manage the business. Madura Fashion & Lifestyle brands — Louis Philippe, Van Heusen, Allen Solly, Peter England and People — will join the reach, distribution and customer loyalty enjoyed by Pantaloons across the country,” said a Future group press release.
Kumar Mangalam Birla, chairman of the Aditya Birla group, said in a statement, “The proposed acquisition is in line with our strategic intent to be on the top of the league and to create the largest integrated branded fashion player in the country through an extension into the value segment. This acquisition will catapult the BSE listed Aditya Birla Nuvo to the pole position in the branded fashion space in all the segments with a pan India presence.”
“On completion of the acquisition, the two entities, ABN’s Madura Fashion & Lifestyle and PRIL, will work closely as partners to derive operational synergies, in terms of back end, supply chain and many other important value drivers of the business. We are delighted to have Kishore Biyani as our partner in the Pantaloons format business. Furthermore, to ensure continuity the current management team will continue to run the business,” added Birla.
PRIL said its board of directors would meet on May 3 to consider an issue of equity shares or instruments convertible into equity shares to investors on a preferential basis, subject to approval by an extraordinary general body meeting.
admin
April 30, 2012
Vishal
Krishna, Businessworld
Bangalore,
30 April, 2012
It
is a marriage of two companies with their business roots firmly
entrenched in Kolkata. The $4-billion Aditya Bitla Nuvo has acquired
a part of Pantaloon Retail India Limited’s lifestyle business
called ‘Pantaloon’. Eighty-six such stores will now
form part of a new entity, controlled by Aditya Birla Nuvo (ABN),
which will be automatically listed on the BSE and the NSE.
A source from the Future Group added that ABN has for the moment acquired a minority stake by infusing Rs 800 crore through debentures, which will be converted to equity when the new entity is formed, where ABN will have a majority stake of 50.1 per cent. ABN will have the majority stake only after it makes an open offer to the shareholders of Pantaloon Retail India Ltd (PRIL). ABN will also infuse another Rs 800 crore to service the debt of Pantaloon. Both groups which are being advised by JM Financial are yet to decide the swap ratio that will determine the shareholding in the new entity. The word on the street is that PRIL will own 25 per cent in the new entity and will manage the operations of the 86 stores whose turnover is expected to touch Rs 1,700 crore this financial year ending June 2012.
More importantly it means that Rs 1,600 crore of debt will be wiped out from the balance sheet of PRIL, which has a debt of Rs 5,256 crore. “This is the first of the many steps to wipe off the debt in the Future Group,” says Devangshu Dutta, CEO of Third Eyesight.
According to SMC research the retail industry gathered new momentum during the year 2011. Different international brands were established. New shopping malls and department stores were seen sprouting across the country. In terms of growth, the organised retail segment in India is projected to be 9 per cent of total retail market by 2015 and 20 per cent by 2020. ABN’s business generates $ 4 billion in revenues, but its lifestyle business generates only $400 million in revenues.
Madura Fashion and Lifestyle is the largest premium branded apparel player in India. Louis Philippe, Van Heusen, Allen Solly and Peter England are the brands retailed through 1,082 exclusive brand outlets spanning across 1.6 million square feet of retail space. These brands are also retailed in more than 1,250 departmental stores and multi brand outlets. It has a strategic distributorship tie-up with leading brand Esprit and retails international brands under ‘The Collective’, a luxury store. But the day-to-day management of the new entity will be run by Pantaloon’s management team. Rakesh Biyani and Kailash Bhatia will continue to manage the business and a “Fashion Council” which will have the best talent from Madura Garments and Future Group will aid and advise the management with the objective to fully leverage the strengths of Madura Garments and Pantaloon.
This buyout will allow ABN to access markets where it was previously absent. Pantaloon is well suited for tier II and III towns. “The exponential growth experienced by retail sector is not just limited to the major cities,” says D K Aggarwal, MD of SMC Investments in Mumbai. He adds that the growing population and urbanization provides a huge market for organized retail. But why sell stake in a venture that was highly profitable for the Future Group and which had the highest concentration of private label in the business? “The rising debt levels of Pantaloon have been impacting the growth of the Group,” says Aggarwal of SMC. He adds that they have been paying about 60 per cent of their revenues as interest cost. This move is a bit surprising because the company had indicated rationalizing its non-core business and other JVs. But Pantaloon, due to its cash crunch was not able to grow its topline. This shows that Kishore Biyani, the MD of PRIL, had to sell one of his jewels which he essentially nurtured since 1997.
But some analysts call this a clever move by Mr Retail because retaining management control of the new entity will allow Kishore to continue his quest to win the Indian shopper. And this time with the help of the $35 billion Aditya Birla Group he can keep his story of making history in the Indian retail market intact.
