In an interaction with journalists, Kumar Mangalam Birla, chairman, Aditya Birla Group, said the group plans to invest about Rs 400-500 crore every year over the next three years to expand its retail network under the new merged entity, Aditya Birla Fashion & Retail. Birla also said that more patience is needed with the Modi government and people must not expect fundamental changes to happen in a year’s time. Excerpts:
What was the idea behind the entire transaction?
Essentially we are creating the country’s largest branded apparel retail company. I think there are lots of synergies between the two operations. Our investors have been asking for this. The size and scale (of operations) and the fact that it’s an independent listed entity gives it a different outlook.
How do you see growth in the retail segment coming?
I think that the apparel segment growth, as I understand, is somewhat de-linked from the growth of the economy. I think the growth rate one has seen is much higher just because it’s still a nascent sector (in India). If you look at the past record of these companies (Pantaloons and Madura), they have grown much faster than industry average. We can expect this to continue.
Did you undertake the merger because Pantaloons has been in the red?
That was not a driving factor for this deal. Profitability has increased significantly, and lots of work has gone into restructuring and reformatting, renovating stores, refreshing brands. So we thought it was right to carry out this transaction.
To what level can you scale up your retail business and what kind of investments are you looking at during the next five years?
We will add 250-300 shops (Madura) per year, and 30-35 stores per year in Pantaloons. I think that would mean an investment of about Rs 400-500 crore every year, for the next three years.
E-commerce platforms normally go for massive discounts. What is the logic behind utilising these platforms to sell your brands?
I think there have been some discussions between e-commerce players and high end apparel manufacturers on bringing an end to discounts. We don’t want our brands to become discounted brands. If higher discounts continue we will stop selling on e-commerce platforms.
There has been a lot of talks about e-commerce and m-commerce platforms overtaking the brick-and-mortar stores in sales in future. Do you see any of this impacting the brick-and-mortar stores?
I think that our leading brands, in each of our segments, are firmly entrenched. The impact on them will be minimal. There is no doubt that brick and mortar retailing will get impacted by the e-commerce platforms in future. But, I don’t think that the brick and mortar retail is going away, but growth rates may slow down due to the emergence of e-commerce.
Have you noticed any significant changes with PM Modi completing a year in the coming days?
It is unrealistic to expect fundamental changes to happen in a year. Even if you take over a company, and you want to turn it around, it can’t happen in just one year. And here we are talking about a very complex country. But, what I see is that the focus is on the right areas. A lot of work is going on and the PM is doing all the right things. I think it is very reasonable to expect that it will take another year before we actually see the ground impact.
The combined entity, Aditya Birla Fashion and Retail, has a large debt. Would you look to pare that down?
I think the debt, Ebitda and the debt to Ebitda ratio is at a very reasonable level. It is very well capitalised and has a very strong balance sheet.