The Aditya Birla Group is an Indian multinational conglomerate headquartered inMumbai, Maharashtra, India. It operates in 33 countries with more than 133,000 employees worldwide. The group interests in sectors such as viscose staple fibre, metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilisers, insulators, financial services, telecom, BPO and IT services. The Aditya Birla group is a diversified conglomerate with a total revenue of approximately US$40 billion in year 2012. The group was founded by Ghanshyam Das Birla. With a gross revenue of USD 40 Billion (in 2012) it is the third largest Indian conglomerate behindTata Group with revenue of nearly USD 100 Billion and RIL with revenue of USD 67 Billion.
Aditya Birla Group of Companies
•Aditya Birla Minacs Worldwide Limited
•Aditya Birla Minerals
•Aditya Birla Chemicals (India)Limited
•Utkal Alumina International Limited
•Dahej Harbour & Infrastructure Limited
•Aditya Birla Science and Technology Company Limited
•Tubed Coal Mines Limited
•Birla Sun Life Asset Management Company Limited
•Aditya Birla Finance Limited
•Aditya Birla Money Mart Limited
•Aditya Birla Money Limited
•Aditya Birla Insurance Brokers
•Aditya Birla Capital Advisors Private Limited
•Idea Cellular Limited
•Madura Fashion & Lifestyle
•Essel Mining and Industries
•Aditya Birla Retail
•Indo Thai Synthetics
•Thai Acrylic Fibre
•Thai Carbon Black
•Aditya Birla Chemicals (Thailand) Limited
•Birla Laos Pulp and Plantations Company Limited
•Indo Phil Textile Mills
•Indo Phil Cotton Mills
•Indo Phil Acrylic Manufacturing Corporation
•Pan Century Surfactants Inc.
•PT Indo Bharat
•PT Elegant Textile Industry
•PT Sunrise Bumi Textiles
•PT Indo Liberty Textiles
•PT Indo Raya Kimia
•Swiss Singapore Overseas Enterprises Pte Limited
•Alexandria Carbon Black Company SAE
•Alexandria Fiber Company SAE
•Liaoning Birla Carbon Company Limited
•Birla Jingwei Fibres Company Limited
The recent announcement of Aditya Birla Nuvo buying into Pantaloons apparel format has set the stage for consolidation in the Indian apparel retail business. On 30th April 2012 Pantaloon Retail announced a stake sale in its Pantaloons apparel format to Aditya Birla Nuvo Ltd (ABNL) to reduce its debt burden and improve profitability. In fact this news had a positive impact on the share price of Pantaloon Retail which shot up by ~9% on the announcement day.
But, before analysing what it means for you as investors let’s see what the deal entails: Under the deal, Pantaloons – the apparel retail chain, will be demerged from Pantaloon Retail India Ltd (PRIL), into a separate entity. The Pantaloons format is present in 35 cities with 65 stores and 21 factory outlets covering a total retail space of more than 2 million sq. ft. It is expected to post sales of around Rs. 1,700 Cr. for the year ending June 2012. Further, Aditya Birla Nuvo Ltd (ABNL), that owns Madura Fashion & Lifestyle, will subscribe to debentures amounting to Rs. 800 Cr. issued by PRIL.
On completion of the demerger process, the debentures will convert into equity in the demerged entity. Apart from this, the demerged entity will carry a debt of Rs. 800 Cr. on its balance sheet transferred from PRIL. In-effect this will reduce PRIL’s debt by Rs. 1,600 Cr. (800 Cr. of debentures+ 800 Cr. taken over by the demerged entity). This will be followed up by an open offer to acquire 26% stake in the demerged entity by ABNL After the listing of the resulting entity and on conversion of debentures into equity, ABNL’s holding in the company post open offer shall be a minimum of 50. 01%.
The entity will then become a subsidiary of ABNL. The existing shareholders of PRIL, including its promoters will continue to own shares in the demerged entity. The proposed transaction is likely to be completed within 8 to 10 months, subject to the finalisation of the Scheme of Arrangement, due diligence and statutory and other requisite approvals. PRIL – PRIL operates a number of retail chains including Pantaloons Format, Central, Big Bazaar, Food Bazaar, Home Town and eZone and also has allied businesses in consumer finance, life and non-life insurance, logistics infrastructure, supply chain and brand development.
To expand these retail chains, PRIL had more than doubled its debt in the last couple of years to Rs. 7,846 Cr. at the end of June 30, 2011. This has led to higher interest outgo, affecting the profitability of the company. In the current high interest rate environment and weak economic conditions, the company has seen a significant decline in its margins. Thus the company would have faced difficulties in servicing its debt obligation in future. Through this deal, the management is looking to lower the debt burden and improve its profitability.
With this deal, the company will reduce its ballooning debt by around 20% to around Rs. 6000 Cr. The reduction in debt will help PRIL improve its liquidity situation and profitability in future. ABNL – Madura Fashion & Lifestyle, the branded apparel retailing business of Aditya Birla Nuvo, is one of the largest premium-branded apparel players in India with a turnover of more than Rs. 1800 Cr. Its popular brands are Louis Philippe, Van Heusen, Allen Solly, and Peter England. It has around 1000 exclusive brand outlets (EBO) and around 1250 departmental stores and multi-brand outlets.
The deal is in line with ABNL’s strategy to become one of the top apparel players in India. After acquisition of Pantaloon apparel format, Madura Fashion will become the largest integrated branded fashion player in the country with a total turnover of around Rs. 4000 Cr. and a vast retail distribution network. Even after the deal, Pantaloon Retail’s total debt will continue to remain high (~Rs. 6000 Cr. ). The company is also working on various other restructuring options such as a stake sale in its other subsidiaries to reduce debt.
Having said this, the deal will ease the liquidity problem in the short-term by improving the profitability to a certain extent. On the other hand, ABNL is already sitting on huge debt of more than Rs. 9000 Cr with a Debt to Net Profit ratio of close to 10 as of FY-11. With this deal, ABNL’s debt will further increase and might affect its profitability going ahead. On the positive side, the demerged entity will have will have only Rs. 800 Cr. of debt and a debt to equity ratio of less than 1. It is expected that Madura Fashion & Lifestyle will merge with this demerged entity.
If this happens, it would be the largest apparel retail company with relatively less debt and large distribution network. Going forward, this merged entity could be a good bet for the investors in the apparel space. But, it remains to be seen how Pantaloons performs under the management of ABNL and whether the merger with Madura Fashion happens. Hence, investors would be advised to wait till the demerged entity gets listed on the stock exchange. The Pantaloons stake sale is a clear indication that the retail apparel industry is witnessing tough times.
And when a big brand like Pantaloons had to opt for a stake sale to reduce its debt, the mid-sized apparel companies are even more hard-pressed. Our next article on Tuesday will talk about the pain mid-sized retailers are going through and how their stocks have performed in the past. Watch this space for the same… To pay initial $152 mln to take stake in Pantaloons clothing brand * Deal to help Pantaloon to cut its debt by 16 bln rupees * Aditya Birla to ramp up presence in Indian retail (Adds comments, further details) By Nandita Bose
MUMBAI, April 30 (Reuters) – Indian conglomerate Aditya Birla Nuvo Ltd (ABNL), is to pay an initial 8 billion rupees ($152 million) towards getting a controlling stake in the Pantaloons Format clothing brand and retail chain which is being demerged from the broader Pantaloon Retail business, it said on Monday. The Pantaloons Format spin-off will enable Pantaloon Retail, the country’s biggest retail group, to cut its debt by 16 billion rupees ($304 million) from its current 58 billion rupees, which has constrained it from investing in growth. “It (the retail sector) is a business that needs a good odel, which Pantaloon has, and continuous investments, which Birla can offer,” said a fund manager at SBI Mutual Fund who declined to be named. Pantaloon Retail is controlled by tycoon Kishore Biyani’s Future Group and will continue to own its other businesses such as hypermarkets under the Big Bazaar brand, the E-zone electronics chain and lifestyle retailer Central. Indian retailers including Future Group and Shoppers Stop have been scrambling to raise funds after the Indian government backed down on a decision to allow foreign direct investment in the multi-brand retail sector in December. This will help Biyani reduce his mounting debt, which has been a very big concern for his investors,” the fund manager said. Shares in Pantaloon Retail jumped 9. 35 percent on Monday to close at 187. 70 rupees ahead of the deal’s announcement. Before Monday’s rise the stock had fallen by more than half since the start of 2011. Pantaloon Retail will keep a minority stake in the Pantaloons business, which will have its own listing, and will continue to manage it while ABNL will hold at least 50. 01 percent on completion of the transaction.
The Birla group is one of India’s biggest business houses, with interests including mobile carrier Idea Cellular and aluminum maker Hindalco Industries. Its ABNL arm operates the Madura Fashion & Lifestyle retail business which it said will complement the Pantaloon business. “The two entities, ABNL’s Madura Fashion & Lifestyle and ‘PRIL’ (Pantaloon Retail) 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,” the company said in a statement.
It said Madura’s retail space covers 1. 6 million square feet while the Pantaloons Format business is spread over 2. 05 million square feet. “We are delighted to have Mr. Kishore Biyani as our partner in the Pantaloons Format business,” ABNL chairman Kumar Mangalam Birla said. Under the transaction Aditya Birla Nuvo, which the market values at $2 billion, will subscribe to debt issued by Pantaloon Retail which will be converted into equity on completion of the spin-off process, the companies said.
ABNL, which expects the deal to be completed in eight to 10 months, will also make an open offer to shareholders of the newly listed entity, to take its holding to just over 50 percent. The Pantaloon-branded business is on track to generate 17 billion rupees in revenue in the current fiscal year and expects to add 20 stores annually, the companies said. Last year ABNL’s Madura Fashion & Lifestyle unit generated revenue of 21. 45 billion rupees, it said. ($1=52. 56 Indian rupees) (Editing by Greg Mahlich)