The rise in discretionary spend among the middle class, a consumer shift towards branded fashion and the growing size of the market have made the Indian fashion retail industry a lucrative option for private equity (PE) players. According to industry experts, the domestic fashion business is expected to touch a whopping R1,100 crore by 2013, from the present R480 crore.
With the increase in demand for designer clothes and the potential investments being planned by fashion retailers, this segment is seen as a safe bet by the investor community to park their funds. Higher margins compared with categories like food, FMCG and consumer durables, and significant capacities and low cost manufacturing capabilities in the country, are major draws for the PE community.
Last year, private equity firm SAIF Partners invested R100 crore in kidswear retailer Catmoss, which also sells kids? footwear and accessories through its 150 exclusive brand outlets, 175 multi-brand stores and 105 kiosks within large-format stores with a national footprint. Now, according to recent reports, fashion house Kimaya is in talks with PE majors to raise funds by diluting its stake of about 15-20% to fuel its expansion plans.
Said Pradeep Hirani, chairman and managing director, Kimaya Fashions, ?The private equity players are extremely bullish on this sector. This is evident from the fact that the PE players have been investing in the luxury segment for the last 2-3 years and have given valuations in the range of 4-8 times of the top line,? said Hirani. He did not want to talk more about his fund-raising plans.
Kimaya plans to launch 25-30 stores over the next three years, widening its presence across the country. This would include expanding into tier-II and tier-III cities, apart from airport retail.
Helion Advisors, a multi-stage, India-focused venture fund with $350 million under management, sees fashion retail as a potential area for investments. ?Fashion retail as a space is an area of interest to us, but it depends on the kind of business. We are interested in apparel, accessories and e-commerce in this space. Typically, we look into the team, market opportunity, current size of the market and growth rate,? said Kanwaljit Singh, managing director, Helion Advisors, adding that there are not too many players in this field.
In November, Helion Venture Partners and Accel Partners India invested $2.8 million in Exclusively, an e-commerce portal for fashion apparel and accessory space. The company said it will use the funding for marketing and to expand its technology platform and consumer markets.
Some of the other PE players who have exposure in the fashion retail segment, include the Kishore Biyani-promoted Future Ventures India. In the fashion segment, its portfolio includes women?s apparel brand Biba Apparels, Holii Accessories and Indus-League Clothing. PE players Sequoia Capital Fund, Mayfield Fund and Silicon Valley Bank also have investments of R110 crore in Genesis Colors, the holding company of designer brands Satya Paul, Deepika Gehani, Samsaara, Shobhaa De and the lingerie brand Bwitch.
According to research platform VCCEdge, there has been nine deals totalling up to $57.2 million in the overall retail segment so far this year, while 2010 saw a total of 12 deals worth $372.02 million in retail including fashion retail. Industry experts feel more investments are likely to happen in niche segments and categories or retail models.
?PE players are expected to be more selective and focused in their investment in this space ? picking specific sub-sectors and specific players,? said Mohit Bahl, executive director, transaction services, KPMG.
?Global luxury conglomerates have launched PE funds which are only looking at opportunities to invest in the India luxury segment,? said Hirani from Kimaya.
Recently the world?s largest luxury retailer, LVMH Group, launched a $650-million private equity fund focusing on India, China and Southeast Asia. The fund will not just offer capital but will bring in the expertise of the LVMH Group to develop local companies into global names.
Industry watchers point out that today global luxury brands are exploring newer territories like India and China and despite India currently having a minimal 2% share in the global luxury market, experts predict that the CAGR from 2006 to 2015 is likely to be about 25%.
However, industry experts feel there are some disadvantages for the sector when it comes to attracting funding. ?Fashion cycles are short, leading to higher risk of unsold inventory and mark-downs, significant brand building cost and consumer spend goes down significantly during slow down,? said Bahl of KPMG.