NEW DELHI, India — Two major mergers are expected to shake up India’s retail scene.

A deal that will create the largest apparel and fashion company in India was revealed Sunday when the Aditya Birla Group’s board approved the combination of two of its operations, which will create a company with total sales of 52 billion rupees, or $846 million at current exchange.

Meanwhile, the Future Group disclosed plans to buy a majority stake in Bharti Retail, formerly the partner of Wal-Mart Stores Inc. in India, in a share swap agreement with an estimated 7.5 billion rupees, or $118 million.

Kishore Biyani, chief executive officer of Future Group, said the merged entity would have estimated sales of 20 billion rupees, or $315.75 million. It would also see faster growth, with 4,000 stores projected by 2021.

“Retail consolidation is the way forward. It will bring in efficiencies and reduce cost of operations,” Biyani said.

Future Group has 371 stores and Bharti Retail has 200.

Bharti was a relatively slow starter in retail; the joint venture with Wal-Mart in 2007 ended in 2013 after it failed to meet the projected growth or market expectations. Wal-Mart has continued its cash and carry business as a wholly owned subsidiary in the Indian market, and has more than 20 stores in India.

Meanwhile, Reliance Retail has become the biggest retailer in the country, with 2,621 stores.

The new company formed by the merger within the Aditya Birla Group — renamed Aditya Birla Fashion and Retail Ltd. — will include Madura Fashion, the branded apparel retailing division, and Madura Lifestyle, the luxury branded apparel retailing arm of Aditya Birla Nuvo. These will be merged into Pantaloons Fashions & Retail, which the group acquired in 2012 from the Future Group, and together the three firms will form the new ABFRL.

Pantaloons was an important store chain in the Future group portfolio, with a high brand recall among customers.

“The Pantaloons brand will continue at the level of stores, even as the company’s name will change,” Birla said. There are more than 100 Pantaloons stores at this time

It will also benefit from the strong performance of the brands at Madura; Pantaloons Fashion and Retail, for example, with sales of 16.6 billion rupees, or $265.79 million, for the year 2013-14, had recorded a loss of 1.88 billion rupees, or $30 million.

Biyani figures in both deals: The executive had kept an 18 percent stake in the Pantaloons business and is expected to find his stake diluted to 2.5 percent with the share swap.

The Aditya Birla Group will now have a retail network of 1,869 exclusive stores covering 4.8 million square feet, said Kumar Mangalam Birla, chairman of the Aditya Birla Group.

The merged company is expected to open about 200 stores a year on average for the brands and 30 Pantaloons department stores.

“This consolidation will create India’s largest pure play fashion and lifestyle company with a strong bouquet of leading fashion brands and retail formats,” Birla said, adding that shareholders would now get an opportunity to “participate in the promising fashion space directly.”

According to analysts, this takes the fashion platform into a new, more considered phase that will add value to the entire segment.

Madura has brands such as Allen Solly, Louis Philippe, Van Heusen, Peter England, People and Linen Club.

Allen Solly is estimated to have sales of 8 billion rupees, or $126 million, in the 2014-15 fiscal year, which ended on March 31. The brand, which has a strong position in the men’s formalwear category, was launched in 1993, and has 207 standalone stores.

“We nearly doubled our store count in the last two years. We opened around 50 stores,” said Sooraj Bhat, chief operating officer of Allen Solly.

Louis Phillipe, another brand in the group portfolio, is expected to reach sales of 16 billion rupees, or $250 million, this fiscal year, up from 12 billion, or $189 million, last year.

Discussing the two deals, both groups  cited operational synergies on various fronts such as sourcing, real estate and technology platforms to be game changers for the future. However, with larger size, analysts observed, there would also be larger stakes and a bigger rush to capture consumer spend.

“It would now be very interesting to see a tougher fight for the leadership position in this particular space between Future Retail and others that include Reliance Retail, Aditya Birla Retail, and Spar, to name a few strong competitors,” observed Arvind Singhal, chairman of management consulting firm Technopak.

The deals come as India’s economy and retail market continue to grow rapidly, outpacing that of nations such as China and Brazil. Global brands such as Gap and H&M are launching in the Indian market this year and plan for aggressive growth. Others, such as Marks & Spencer in a joint venture with the Reliance group, are also in the race for retail growth.

As Rajan Mittal, vice chairman and managing director of Bharti Enterprises, observed after making the announcement: “The option was not to exit, but to have a larger role as the sector itself keeps evolving.”

load comments
blog comments powered by Disqus