Walmart-owned Flipkart will buy a 7.8 per cent stake in Aditya Birla Fashion and Retail for Rs 1,500 crore as it taps into the offline retail player's large bank of apparel outlets to bolster its presence in the high-margin fashion business. Billionaire Kumar Mangalam Birla's retail business will issue preference shares to Flipkart, giving it a 7.8 per cent stake, Aditya Birla Fashion said in a stock exchange filing on Friday.
The transaction was at Rs 205 per share, a 33.6 per cent premium to Thursday's closing price of Rs 153.4. Aditya Birla Fashion's current owners will hold a 55.1 per cent stake after the allotment.
While Flipkart will gain from Aditya Birla Fashion's range of international and Indian brands, the deal will help the company cut down debt, which stood at Rs 2,776 crore as of March 31, 2020. The investment will give it a bigger foothold as it battles it out with rival Amazon.com and billionaire Mukesh Ambani-run Reliance Industries, which is rapidly expanding its retail business via major acquisitions and funding from overseas investors, including Silver Lake and KKR.
In August, Reliance Retail Ventures, an arm of Reliance Industries, announced a plan to buy Indian retail pioneer Future Group's units for Rs 24,713 crore. Aditya Birla Fashion — which owns the rights to sell Forever 21, American Eagle Outfitters and Ralph Lauren branded clothes, among others, in the country — has a network of about 3,000 stores, including Pantaloons fast-fashion chain.
It also has a presence across approximately 23,700 multibrand outlets with over 6,700 points of sale in department stores. Aditya Birla Group Chairman Kumar Mangalam Birla said this partnership is an emphatic endorsement of the growth potential of India.
"It also reflects our strong conviction in the future of the apparel industry in India, which is poised to touch USD 100 billion in the next 5 years. Fashion retail in India is set for robust long-term growth due to strong fundamentals of a large and growing middle class, favourable demographics, rising disposable incomes and aspiration for brands. "Rapid growth of technology infrastructure will further accelerate this process. Over the years, we have shaped ABFRL into a strong platform to capture future growth opportunities in India. This partnership is a critical component of that strategy," he said.
ABFRL said it plans to use this capital to strengthen its balance sheet and accelerate its growth trajectory. The company plans to aggressively scale-up its existing businesses where it holds a strong and market-leading position, while increasing presence in emerging high-growth categories such as innerwear, athleisure, casual wear and ethnic wear, establishing these as the new engines of growth for the company, it added.
ABFRL will aggressively accelerate the execution of its large-scale digital transformation strategy that will deepen the consumer connect of its brands, expand the reach of its diverse brand portfolio, build strong omnichannel functionalities and augment its backend capabilities; positioning it amongst the most comprehensive omnichannel fashion players in the country. The company said it has also entered into a commercial agreement in relation to the sale and distribution of its various brands.
Ashish Dikshit, MD of ABFRL, said this deal also provides a tremendous opportunity to build the scale of existing brands and expand its brand portfolio into emerging consumer segments. "At the Flipkart Group, we are focused on building new partnerships that will help us meet the demands of the discerning Indian consumer who seek quality and value.
"…We look forward to working with ABFRL and its well-established and comprehensive fashion and retail infrastructure as we address the promising opportunity of the apparel industry in India," Kalyan Krishnamurthy, CEO of Flipkart Group, said. The transaction is subject to regulatory and other customary approvals. Shares of Aditya Birla Fashion Retail ended at Rs 165.05 apiece, up 7.59 per cent over the previous close.