The Indian apparel and retail clothing sector witnessed a rush of private equity (PE) investments in 2011. The mounting PE interest in Indian apparel and fashion space was seen when Avigo Capital acquired a controlling stake in Spykar Jeans and Future Ventures’ went ahead with a stake buyout in Indus-League.
According to PE investors, there was an increased interest from MNCs to enter the Indian market through buyouts or joint ventures, which will help players reap a high return through strategic sell-outs.
“PE firms are optimistic about the high return which can be earned once MNCs opt for acquisition or JV route for strengthening their presence in India,” says Achal Ghai, managing partner, Avigo Capital. In its deal with Spykar, Metmin Investments, Avigo Capital’s limited partner (investor), invested Rs 30 crore to acquire a 30 per cent stake in Spykar, while Avigo holds another 30 per cent stake.
Last month, L Capital Asia, a private equity arm of the world's largest luxury conglomerate LVMH Group, made its first investment in India by acquiring 25.5 per cent stake in Genesis Luxury Fashion, which owns luxury fashion labels like Satya Paul and Bwitch!.
According to data from VCCedge, 2010 saw seven deals worth $163 million against 12 deals worth $33 million in 2009 in the apparel space. In 2011, the industry has already witnessed seven deals worth $44 million. The organised retail market in India is around $ 30 billion and market for clothing was at $10.1 billion or 36 per cent of the organised retail market.
“Fashion is a sunrise sector and as such is poised for growth. If FDI in multi-brand retail is allowed, it will give further impetus to the sector. PE interest in this segment is therefore logical,” says Abhijit Joshi, senior partner and CEO, AZB & Partners. AZB advised Kimaya Fashions on its deal with Franklin Templeton.
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In July, Franklin Templeton Private Equity acquired a 13.51 per cent stake in Kimaya Fashions Ltd. “Though the apparel market in India is overcrowded, there is high demand for companies with established brands. The companies with either international or national brand recognition are hot targets for PE investments,” Ghai added.
In March 2011, apparel retail chain Vishal Retail sold its wholesales business to private equity firm TPG and Shriram Group for Rs 70 crore. Aditya Birla Group is reportedly selling a minority stake in Madura Fashion & Lifestyle, formerly Madura Garments, to PE players. Madura has well known brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England.
“The interest from PE firms is stronger on those companies that are positioned at premium segments of the consumers, at value segments, and in speciality segments such as children’s, teenage fashion, western styled women’s wear etc.” says Arvind Singhal, chairman, Technopak Advisors, a management consultancy firm.
In July, Future Ventures India Ltd (FVIL), Future Group's investment and business management arm, acquired an additional 5.14 per cent stake in Indus-League Clothing Ltd (ILCL), a group firm, increasing its holding to 91 per cent. ILCL owns brands like Indigo Nation, Scullers, Jealous, Urbana, Urban Yoga besides holding exclusive license for Lee Cooper and Manchester United merchandise.
“We believe growth in the branded segment is more than the growth in overall apparel market. Many of the branded apparel firms are growing between 25 to 40 per cent,” said K K Rathi, chief executive, Future Ventures.
“With the entry of more global players, there is high possibility for consolidation in the fragmented apparel sector in India,” said Ghai.
Foreign players have been entering India either through tie-ups or JVs. Spanish brand Zara joined hands with Trent, the retail arm of the Tata Group. Trent had also signed an agreement with Zara's parent company, the Inditex Group, to bring another brand Massimo Dutti to India.
Reliance Brands, a unit of Reliance Industries, has signed up with global brands such as Diesel, Ermenegildo Zegna and Steve Madden in the last couple of years, to open their stores in the country.