Aditya Birla merges retail biz to create two bn dollars entity

Kumar Mangalam Birla-led Aditya Birla Group has finally announced the merger of its two retail arms — the Aditya Birla Nuvo-owned fashion retailing business with Pantaloons Fashion & Retail. The merger has led to the launch of Rs 12,000 crores (around two billion dollars) branded apparel entity called Aditya Birla Fashion & Retail (ABFRL).

As per the scheme of things, approved on Sunday by the boards of respective companies, Madura Fashion, the branded apparel retailing division, and Madura Lifestyle, the luxury branded apparel retailing of Aditya Birla Nuvo, will be demerged into its listed subsidiary, Pantaloons Fashions and Retail (PFRL).

An apparel retail behemoth shapes up

Once the restructuring process is complete, the joint-entity ABFRL will have 1,869 stores across India with revenues of Rs 5,290 crores and debt of Rs 1,775 crores (as debt of around Rs 475 crores will be passed on from Madura to Pantaloons Fashion). While experts believed that Birla would bring its loss-making supermarket format More, under the new entity, the company has refuted having any such plans. The deal has also excluded Jayshree Textiles, another division within Madura, which happens to be a strong in linen manufacturing division having over Rs 1,300 crores in sales annually, clearly indicating its plans to focus on apparel retail.

Aditya Birla Group entered fashion retail with the acquisition of Madura for Rs 236 crores in 1999. And the department store chain Pantaloons was acquired from Kishore Biyani's Future Group in 2012. At present, the Birlas own 72.62 percent stake in Pantaloon Retail.

Of late, the group has been focusing on strengthening Pantaloons business. After taking charge of the 65 Pantaloons outlets in 2013, it has added 40 new stores in the past two years. The product range from Pantaloon stores is also available through Aditya Birla Group's e-commerce platform Trendin.com along with Allen Solly, Louis Philippe and Peter England from the Madura F&L portfolio.

Emerging a strong entity against rivals

The move towards establishing an apparel retail giant, to merge strong apparel brands such as, Van Heusen, Louis Philippe and Allen Solly, which had sales worth Rs 3,226 crores, with loss making department chain Pantaloons that reported revenues of Rs 1,661 crores in year ended March 2014, is seen as a well-planned decision to attract investors and race ahead of rivals. While Madura has been a profitable venture, Pantaloon business had a net loss of Rs 187 crores last fiscal.

As per the deal, ABNL shareholders will get 26 shares of Pantaloon for every five held and Madura Fashion shareholders will get seven shares of Pantaloon for every 500 held. In addition, preference shareholders of Madura will get one share of Pantaloon. So an existing investor with 100 equity shares in ABNL will continue to hold those and will also get 520 of Pantaloon. Though, industry experts and analysts don't anticipate any immediate benefit in the valuation.

However, the merged entity will now have a large retail footprint of five million sq. ft. spread across 1,900 stores, almost double compared to Shoppers Stop. The deal will help build synergy and strengthen regional market share, the company said, adding, while Madura is strong in both north and south India, Pantaloon has a leadership position in the east.