Building an empire: Birla eyes M&As to fill up $1-billion apparel closet

In September 2018, Aditya Birla Group decided to sell its struggling grocery retail chain to focus more on apparel retailing. The sale of the chain was six years after Birla acquired Pantaloons, a clothing chain, from Future Group for Rs 1,600 crore.  Since then, Aditya Birla Group has created a sprawling apparel retail business through a series of acquisitions while shutting down its loss-making online retailing arm — Abof.com (All About Fashion) — in 2017.

The apparel retailing flagship — Aditya Birla Fashion & Retail (ABFRL) — over the years has signed a raft of strategic partnerships in the luxury and the super-premium segment with top-of-the-line haute couturiers like Shantanu & Nikhil, Tarun Tahiliani, Sabyasachi, and Masaba to focus on apparel retailing with revenues of close to a billion dollars. 

On Friday, ABFRL announced it had entered into a definitive agreement to acquire controlling stake (51 per cent) in TCNS Clothing Company for Rs 1,650 crore by way of acquisition of the founding promoter’s stake and a conditional public open offer, which would be followed by a merger between two entities.

TCNS Clothing Company, a listed entity with a market capitalisation of Rs 3,215 crore, has ethnicwear brands such as W, Aurelia, Wishful, Folksong, and Elleven.

In conversation with Business Standard after announcing the acquisition, Ashish Dikshit, managing director, ABFRL, said, “This acquisition is part of a well-thought-through long-term strategy intended to build a strong-playing ethnicwear market in the country.”

He said that the company used to be largely menswear centric, with Madura Fashion & Lifestyle growing to become a predominant favourite in the ready-made menswear industry in India.

“We added Pantaloons, which had some share of women’s wear, but mostly private label and external brands. We didn't have brands for women, and our ethnicwear business was largely missing. About four-five years back, we decided this was too large and an important market for us to miss. Albeit late, we started to build a portfolio around it,” he said.

The biggest piece missing in ABFRL’s overall ethnicwear story was the women’s premium business because all other brands it had recently entered into partnerships with were otherwise too high-end/luxury. That’s why ABFRL was looking at opportunities in this space, he said. The growth rate of the women’s premium wear ethnicwear market was another reason for ABFRL to look at the space aggressively.

“The market is growing as more and more women look for branded designer clothes. We anticipate this part of the market growing at 13-15 per cent. While the lower end of the market is perhaps growing somewhat slowly because there are a large number of players, it is more competitive,” said Dikshit.

Analysts say Birla will fund the acquisition with Rs 1,900 crore of fund inflow from Singapore’s GIC.

“The company will have to take on incremental debt to fund the acquisition. Our rough calculations show this acquisition will be earning per share (EPS)-dilutive for ABFRL,” said an analyst, adding that investors have already factored in the TCNS Clothing Company acquisition.

“We have cut our 2023-25 EPS estimates for ABFRL sharply by 31-58 per cent as we bake in slower revenue growth in the core business of Madura and Pantaloons and higher advertising and promotion expenses,” observed the analyst.

Analysts also expect increased competition from Reliance Retail which is ramping up its value apparel retail play. Value apparel retailing is facing intense competition from Tata Zudio and Shoppers Stop’s new mass-priced brand InTune. Tata Trent also has a significant presence in the mass brand apparel through Westside.

The Birla group company, with revenue of Rs 8,136 crore, spanning retail space of 9.2 million square feet (as on March 31, 2022), is also taking several steps to face competition. The TCNS Clothing Company acquisition is part of the strategy.

The company has a network of 3,468 stores across roughly 28,585 multi-brand outlets with 6,515 points-of-sale in department stores across India (as on March 31, 2022). It sells brands such as Louis Philippe, Van Heusen, Allen Solly, and Peter England established over 25 years.

Walmart-owned Flipkart, which owns a 7.8 per cent stake in ABFRL, is working closely with the Birla company to sell products via its online platform.

The company’s international brands include The Collective. India’s largest multi-brand retailer of international brands has long-term exclusive partnerships with Ralph Lauren, Hackett London, Ted Baker, Fred Perry, Forever 21, American Eagle, and Reebok.

The company’s foray into branded ethnicwear includes brands such as Jaypore, Tasva, and Marigold Lane and has targeted revenues of Rs 2,000 crore from ethnicwear by 2025-26.

Building an empire

• 100% stake in Jaypore in July 2019 for Rs 110 cr
• 51% stake in Sabyasachi in January 2021 for Rs 398 cr
• 51% stake in S&N in July 2019 for Rs 60 cr
• Majority stake in Pantaloon for Rs 1,600 cr in 2012
• Partners with Tarun Tahiliani for its Tasva brand