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.
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.
admin
April 24, 2012
Writankar
Mukherjee and Sarah Jacob, The Economic Times
Kolkata/Bangalore,
April 24, 2012
More than 750 electronics outlets have either stopped selling Samsung products or cut back on fresh orders after the Korean brand slashed dealer margins on its televisions and home appliances early this year.
Samsung has initiated talks with several retail chains to resolve the issue, but says the development will not impact its sales.
Videocon-owned Next Retail, the country’s largest electronic retail chain, and large regional chains such as Vijay Sales, Kohinoor, Girias, Adishwar and Great Eastern all say Samsung’s new terms are unacceptable in an industry that is struggling with high operating costs and wafer-thin margins.
These chains, which sell more than 500-crore worth of Samsung products a year, warn that Samsung’s move may benefit its rivals, particularly LG.
"There is a strong possibility of rival brands increasing their share due to the scenario," said KS Raman, director at Next Retail, which has reduced its order book with Samsung. But Samsung said its overall business plans are in place and that besides a couple of channel partners, all key dealers continue to maintain healthy stocks.
"Given the fact that our business is growing very strongly, we need to keep evolving and strengthening our channel policies so that channel partners sustain their healthy growth," Samsung India VP (Home Appliances) Mahesh Krishnan said. "We are confident that these couple of channel partners will soon be getting back on the growth track with Samsung," he added.
A team from the firm’s South Korean headquarters visited India during March-April to draw feedback from its key dealers.
Samsung cut dealer margins by 3-8% early this year after a tough 2011 when soaring raw material prices and depreciating rupee drove up input and import costs, and sales took a hit. Retailers say they work on a net margin of 5-7% and face high operating costs from rentals, promotional expenses and manpower payouts. Samsung’s margin cut has significantly dented their profitability."Smaller dealers can survive but big ones with high overheads are already bleeding and will bleed more due to Samsung," said BA Kodandarama Setty, CMD of Vivek’s Retail, a Chennai-based electronic chain with more than 50 outlets.
"We are evaluating the scenario, even though we have not reduced Samsung business till now," he said.
Adishwar India, which operates a chain of 50 stores across Karnataka and Andhra Pradesh, and Vijay Sales, which operates 43 stores across Maharashtra, Gujarat and New Delhi, have stopped fresh orders from Samsung since February.
Samsung accounted for 120 crore of Vijay Sales’ business of around 1,500 crore last fiscal.
Vishal Mewani, director of Kohinoor Televideo, a 12-store chain in Mumbai, said that although it is not possible to avoid a brand like Samsung, the retailer has stopped pushing the brand. This may help rival brands such as market leader LG. The two Korean firms together control almost 50% of the 38,000-crore Indian consumer electronics market.
LG India, which lost out to Samsung in overall revenue for two consecutive years, tempered its margin cuts to 1-2% to take advantage of the situation, retailers say.
"LG is also undertaking changes in the market system and talking the same language, but the margin cut is not hurting us and its much more gradual," Mewani said.
Nitesh Giria, director of Girias, which runs 27 durable stores in Karnataka and Tamil Nadu, said: "As most product features are similar across brands, it is not hard to draw customers to other brands if they are displayed well in a large store."
Giria said his chain is in talks with Samsung and although a deal is yet to be signed.
Girias stopped stocking Samsung products since January. It raked in 90 crore worth of business from Samsung in 2011, on a turnover of 550 crore this fiscal.
Under its new channel policy, Samsung reduced the direct dealer margin and added norms such as uploading details and serial numbers of each Samsung product sold, retailers said. The dealer also has to assure greater in-store display for the brand. If these norms are met, margins can be increased by 1% for each parameter.
Samsung India’s Krishnan says the objective is to ensure healthy sales momentum and profitable growth for the channel and the company.
"The policies are now more oriented towards driving sales to end customers and growing the business in a healthy manner through joint business planning with our channel partners," he said.
The idea is to increase average sales price, which will benefit dealers. "If we can increase the average selling price of the company’s products, the margin cuts will be some what compensated," said Pulkit Baid, director of Great Eastern, a 13-store chain based in Kolkata.
This is probably the first time in India that retailers have joined hands to put pressure on a consumer goods company for better margins. Earlier, there were some individual cases, like Future Group boycotting some products. The trend shows the growing importance of modern trade.
Analysts tracking the sector say there is a possibility that Samsung may lose some market share. "But it is not clear whether consumers would trade up to higher-priced brands or trade down," Devangshu Dutta, CEO of retail consultancy Third Eyesight, said.
