How Flipkart-Aditya Birla Fashion deal is a win-win

Sangeetha Chengappa Bengaluru | Updated on October 23, 2020

Flipkart’s investment of ₹1,500 crore for a minority stake of 7.8 per cent in Aditya Birla Fashion and Retail Ltd (ABFRL), goes beyond the rhetoric of partnering to “leverage synergies in the fashion segment” as claimed by both parties.

While the transaction is also about raising fresh capital at a premium for ABFRL, in an environment where capital is scarce for most large retailers in the country, for Flipkart it is also about getting the right of first refusal to stave off competitors from acquiring stakes in one of the largest retailers in the country.

“ABFRL could have continued selling its brands online on Flipkart and Myntra without parting with any equity stake. This deal is more strategic from the point of view of Flipkart and its parent company Walmart, which is trying to make more and more inroads into the Indian market. ABRFL offers Flipkart and Walmart two things — a bouquet of powerful brands which are very successful and have great market shares within their segments. Second, its offline retail network of thousands of stores pan India. From ABFRL’s point of view, it looks like the deal has been done primarily to raise capital because capital is scarce these days for many large retailers other than Reliance” said Harminder Sahni, founder and MD of Wazir Advisors.

“Having said that, I think ABFRL has walked away with a fantastic deal at a premium of ₹205 to a share. Given that recently the company did a rights issue at ₹110 to a share and its stock price before this deal was announced was at ₹125-130, added Sahni.

‘A pre-emptive move’

According to an analyst who wished to remain anonymous, Flipkart’s stake acquisition was a preemptive move to gain the first right of refusal to stave off competition from other biggies like Amazon, the Tata Group and Reliance which is on an acquisition spree with much success. “Acquiring a minority stake in a large retailer has nothing much to offer. Amazon acquired 5 per cent stake in Shoppers’ Stop, but what has the latter got out of it?” the analyst pointed out.

This is not so much an acquisition of stake but a strategic partnership forged by Flipkart with one of India’s top retailers that will benefit both parties, says Arvind Singhal, CMD of Technopak. “For Flipkart and Myntra, which already have a lead in online fashion sales, its a great opportunity to place their private label fashion brands and other exclusive brands in ABFRL’s Pantaloons multi-brand fast fashion stores, which will allow their customers to experience their brands in stores. Likewise, ABFRL’s brands listed on Flipkart and Myntra will get better visibility, better margins, better data-backed customer information. This is just the beginning, with a flurry of activity from Amazon, Reliance, Tatas, you will see a lot more such strategic partnerships being forged in the next few months.”

Published on October 23, 2020

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