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To leverage synergies in the fashion segment, Walmart Inc-owned Flipkart Group will pick up a 7.8 per cent stake in Aditya Birla Fashion and Retail Ltd (ABFRL) for ₹1,500 crore. The transaction is subject to regulatory approvals, said Flipkart, the country’s lagest e-tailer, in a statement.
Significantly, the deal comes on the heels of Reliance Retail’s announcement of the acquisition of Future Group’s consumer business for around ₹24,713 crore.
The ABFRL deal is seen as a move by Flipkart, which already dominates online fashion with a 70 per cent market share, to strengthen its range of brands on both its platforms — Flipkart and Myntra. As part of the deal, ABFRL will issue 7.31 crore shares on a preferential basis to Flipkart at ₹205 apiece.
ABRFL shares, which opened at ₹153.50 on Friday, hit an intraday high of ₹178.70 after the deal was announced and closed at ₹165.05, a 7.59 per cent jump over Wednesday’s closing.
Growth plans
ABFRL will use the capital to strengthen its balance-sheet and in its growth plans. The company, which posted revenues of ₹8,788 crore in FY20, has a pan-India distribution network of 3,031 stores covering over 8 million sq ft.
It is also present in 25,000 plus multi-brand outlets and over 6,500 points of sale across departmental stores as on March 31, 2020. Its portfolio of brands includes Louis Philippe, Van Heusen, Allen Solly and Peter England — all segment leaders — as well as Pantaloons.
It has also tied up with leading global brands such as Ralph Lauren, Simon Carter, Hackett and Ted Baker. Additionally, in 2016, it acquired the online and offline rights to the India network of US-based fast fashion brand Forever 21.
Post the Flipkart deal, ABFRL plans to aggressively scale up businesses where it holds market leading positions while increasing presence in emerging high-growth categories such as innerwear, athleisure, casual wear and ethnic wear. In addition, it plans to step up its large-scale digital strategy, expand the reach of its brand portfolio, build strong omni-channel functionalities and augment its back-end capabilities.
Preemption rights
Flipkart will also get preemption rights and the right of first refusal for a stake in ABFRL for a period of 1-5 years, which is important to stave off potential bids from rivals for a stake in one of India’s largest retailers.
Also read: Aditya Birla Fashion and Retail reports Q1 net loss of ₹410 cr
“Over the years, we have shaped ABFRL into a strong platform to capture growth opportunities in India. This partnership is a critical component of that strategy,” said Kumar Mangalam Birla, Chairman, Aditya Birla Group.
Kalyan Krishnamurthy, CEO, Flipkart Group, said: “Through this partnership, we will work towards making available a wide range of products for fashion-conscious consumers across different retail formats.”
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