GIC buys 7.5% stake in Aditya Birla Fashion and Retail for Rs 2,195 crore

In the first tranche, GIC will invest Rs 770 crore, while the remaining Rs 1,425 crore would be infused within 18 months. After the investment, Aditya Birla Group will hold a controlling stake of 51.9% in the company.

The consolidated revenue and net profit after minority interest of Aditya Birla Capital for FY22 were up 15% y-o-y and 51% y-o-y to Rs 22,230 crore and Rs 1,706 crore, respectively.

GIC, Singapore’s sovereign wealth fund, is acquiring a 7.5% equity stake in Aditya Birla Fashion and Retail (ABFRL) for Rs 2,195 crore, the company said in a release on Tuesday. The investment will be made by way of preferential equity and warrants.

In the first tranche, GIC will invest Rs 770 crore, while the remaining Rs 1,425 crore would be infused within 18 months. After the investment, Aditya Birla Group will hold a controlling stake of 51.9% in the company.

The capital infusion will strengthen ABFRL’s balance sheet. The company had de-leveraged significantly in Q3FY22 and taken on some debt in Q4FY22, primarily due to the build-up of inventory for the summer season. Analysts expect debt levels to stay within manageable limits in the current year.

“All of ABFRL’s businesses will be operationally profitable in FY2023, though Pantaloons and ethnic wear businesses may require funds for growth. We believe cash flows from Madura business will suffice and ABFRL can close FY2023 with debt levels similar to that of March 2022,” analysts at Kotak Institutional Equities wrote after the company’s Q4FY22 results.

The company plans to use the fresh funds to grow the existing business and for emerging high-growth business models. Analysts are confident about the company’s prospects, which would be fuelled by enhancements to the product portfolio, forays into new consumer spaces and an expansion of the network. The recovery of the offline channel in the current year as the economy opens up is expected to boost sales across segments.

ABFRL is expected to grow its network of stores, especially in Tier-2 and 3 towns, and roll out new product categories to cater to buyers’ preference for casual and active wear. Small-town markets are seeing brisk business, analysts said, as aspirations and purchasing power both rise. There is also a perceptible shift from unorganised to branded products.

Kumar Mangalam Birla, chairman, Aditya Birla Group, said the apparel industry is set for robust long-term growth due to strong fundamentals of a large and growing middle class, favourable demographics, rising disposable incomes and aspiration for brands. “ABFRL has become one of the leading players in this market through its diversified portfolio of strong brands, wide distribution and an established business model and is well-positioned to benefit from this opportunity,” Birla said.

ABFRL’s online and other commerce channels have seen a pick-up in momentum and most of the Madura and Pantaloons stores are now functional online and offline. The company ended FY22 with revenues of Rs 8,162 crore, a growth of 55%. Operating profit margins for the year expanded nearly 300 bps to 13.5% driving up the Ebitda (earnings before interest tax depreciation) by 98% to Rs 1099.9 crore. The company’s losses narrowed to Rs 121 crore from Rs 735 crore in FY21.

In mid-2012, Aditya Birla Nuvo acquired a majority stake in Pantaloon Retail India for Rs 1,600 crore by issuing debentures worth Rs 800 crore at mutually agreed terms and taking on debt of Rs 800 crore. In late 1999, Indian Rayon acquired Madura Garments, the ready-made garments division of Madura Coats, and the brand rights for the international brands from Coats Viyella, for a total consideration of Rs 236 crore. The brands purchased included Louis Philippe, Van Heusen and Allen Solly.

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