Growth in the kids wear segment could soon diminish, with wary private equity (PE) funds saying they are not confident about the sector. The ongoing spat between Lilliput’s investors and auditors have forced PE players to give this section of the market a second thought. Recently, global PE firm Bain Capital sued EY in a US court on accusations of wrong advice about investing in domestic kids wear chain Lilliput.
Today, there are no big kids wear companies worth investing in, say PE players, as all the three national players in kids wear – Gini & Jony, Catmoss and Lilliput – are in a debt trap.
“While some may have stores, none of them have any enterprise value,’’ says an official of the Future Group, which has been hesitant about investing in any of the domestic players through its venture capital arm, despite having forged joint ventures in the past with Gini & Jony and Lilliput.
Gini & Jony, pioneers in organised retail, has been waiting to restructure its debt. Anil Lakhani, Executive Director, Gini & Jony, said, “We are waiting for the debt recast exercise to get over as it has been more than a year. There are no successful domestic players today, and the international brands entering India are solely into kids wear.” Lakhani was referring to international players like Tommy Hilfiger, Benetton and US Polo, which continue to launch their offerings in the market.
PE players who had invested in certain domestic companies have either exited or are in the process of doing so. Though Gini & Jony has 250 stores, they are restricted to Mumbai and Ahmedabad. According to sources, its PE investor Reliance Capital, with a 22 per cent stake and ₹10 crore investment, has been waiting to exit but has been unable to find a buyer.
Unamia, one of the few online sites with a private label in kidswear, is currently ‘reorganising’ its business model with reduced investments from its PE funds.
Jyotsna Pattabiraman, shareholder and former CEO of Unamia, says, “We are restructuring the business, as there has been confusion regarding the private label strategy. Our first tranche of ₹500 crore funding came from Angle Prime, but we are now holding out for more positive signs in the kids wear segment as investors are not yet ready to spend on the category.”
Rachna Lath, Executive Director, PwC, says, “After the Lilliput debacle, PE players will get more careful and will also get worried about valuations in the kids wear segment going forward.”