 "Apparel firms, investors struggle to find right fit")
Once bitten, twice shy. Recent disputes between Indian apparel makers and private equity (PE) investors are making the latter more cautious of investments in the segment.
PE investors are taking a harder look across all levels of the market, in the backdrop of recent tussles such as SAIF Partners versus Catmoss Retail, now before the Delhi High Court.
SAIF, which holds 49 per cent stake in Catmoss, had alleged the latter mishandled Rs 115 crore of PE investment and also of raising money without its consent.
Sanjeev Krishan, executive director at PricewaterhouseCoopers, said: "We have observed PE investors getting extremely cautious about apparel retail investments in recent times - they are doing extensive commercial and market due-diligence in most cases, including on their suppliers or distributors in some cases. We expect this trend to continue in the near future."
The fight between kidswear maker Lilliput and PE investors Bain Capital and TPG had ended with the investors rolling back their entire 45 per cent stake in Lilliput, acquired for $86 million, to promoter Sanjeev Narula last year in a settlement deal.
Saloni Nangia, president of Technopak Advisors, the retail sector consultancy, said: "The key issues are around sharing of business performance numbers, inventory levels within the channels, possible mis-representation of revenues, cost of goods and margins, ownership of inventory and profitability." Last year, another kidswear retailer, Gini & Jony Ltd, backed by Reliance Capital, faced a winding-up petition after it defaulted on payment of about Rs 40 crore to its creditors, HSBC and Barclays Bank.
According to recent reports, the company has restructured the debt, Currently, the Lakhani brothers, promoters of Gini & Jony, hold 65 per cent stake, while around 22 per cent stake is held by Reliance Capital.
"Hence, PE companies should ideally undertake a complete due-diligence of the market environment, the entire business eco-system, systems and processes of the company, including sourcing, manufacturing, own stores, distribution channels, e-commerce and warehousing, as the case may be," Nangia added.
Lack of transparency as well as poor communication between PE investors and promoters are believed to be the core reasons behind the issues.
"On apparel, this has been a challenge on most PE investees. Greater transparency among the PE and the investees is necessary, as on most occasions, the fund believes it is not getting adequate information on store-wise margins and the level of sales offtake by outlet," added Krishan. According to data from VCCEdge, last year saw six deals worth $152 million in Indian apparel retail space against two deals worth $35 mn in 2011.
As many as 14 deals worth $318 mn have been taken place in this segment in three years.
ALL DRESSED UP
PE investors are taking a harder look across all levels of the market, in the backdrop of recent tussles such as SAIF Partners versus Catmoss Retail, now before the Delhi High Court.
SAIF, which holds 49 per cent stake in Catmoss, had alleged the latter mishandled Rs 115 crore of PE investment and also of raising money without its consent.
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"PE nominee directors have received notices from vendors and lessors of premises occupied by the company, alleging default in making payments and dishonouring of cheques issued by the company," said the petitioner. SAIF did not respond to Business Standard queries over its dispute with Catmoss.
Sanjeev Krishan, executive director at PricewaterhouseCoopers, said: "We have observed PE investors getting extremely cautious about apparel retail investments in recent times - they are doing extensive commercial and market due-diligence in most cases, including on their suppliers or distributors in some cases. We expect this trend to continue in the near future."
The fight between kidswear maker Lilliput and PE investors Bain Capital and TPG had ended with the investors rolling back their entire 45 per cent stake in Lilliput, acquired for $86 million, to promoter Sanjeev Narula last year in a settlement deal.
Saloni Nangia, president of Technopak Advisors, the retail sector consultancy, said: "The key issues are around sharing of business performance numbers, inventory levels within the channels, possible mis-representation of revenues, cost of goods and margins, ownership of inventory and profitability." Last year, another kidswear retailer, Gini & Jony Ltd, backed by Reliance Capital, faced a winding-up petition after it defaulted on payment of about Rs 40 crore to its creditors, HSBC and Barclays Bank.
According to recent reports, the company has restructured the debt, Currently, the Lakhani brothers, promoters of Gini & Jony, hold 65 per cent stake, while around 22 per cent stake is held by Reliance Capital.
"Hence, PE companies should ideally undertake a complete due-diligence of the market environment, the entire business eco-system, systems and processes of the company, including sourcing, manufacturing, own stores, distribution channels, e-commerce and warehousing, as the case may be," Nangia added.
Lack of transparency as well as poor communication between PE investors and promoters are believed to be the core reasons behind the issues.
"On apparel, this has been a challenge on most PE investees. Greater transparency among the PE and the investees is necessary, as on most occasions, the fund believes it is not getting adequate information on store-wise margins and the level of sales offtake by outlet," added Krishan. According to data from VCCEdge, last year saw six deals worth $152 million in Indian apparel retail space against two deals worth $35 mn in 2011.
As many as 14 deals worth $318 mn have been taken place in this segment in three years.
ALL DRESSED UP
- 2013: SAIF Partners files suit against Catmoss retail for fraudulently raising money
- 2012: Bain, TPG settles case with Lilliput Kidswear by selling back company shares
- 2012: Creditors slapped winding up petition against Gini & Jony