The Aditya Birla Group is a global conglomerate based in Mumbai, Maharashtra, India. It operates in 33 countries and has over 133,000 employees worldwide.
The group’s interests span various industries including viscose staple fibre, metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilisers, insulators, financial services, telecom, BPO and IT services.
Ghanshyam Das Birla founded the Aditya Birla Group. In 2012, the group achieved a total revenue of around US$40 billion.
With a gross revenue of USD 40 Billion (in 2012), it ranks as the third largest Indian conglomerate. The top two are Tata Group with revenue close to USD 100 Billion and RIL with revenue of USD 67 Billion.
The Aditya Birla Group consists of the following companies:
Aditya Birla Minacs Worldwide Limited, Samruddhi Cement, Novelis Inc., Aditya Birla Minerals, Aditya Birla Chemicals (India) Limited, Utkal Alumina International Limited, Dahej Harbour & Infrastructure Limited, Aditya Birla Science and Technology Company Limited, Tubed Coal Mines Limited, Birla Sun Life Asset Management Company Limited, Aditya Birla Finance Limited, Aditya Birla Money Mart Limited, Aditya Birla Money Limited, Aditya BirlavInsurance Brokers, AdityaaBirrlaaCapital Advisors PrivateeLimiteddIdea CellularrLimiteddMaduraaFashionn&LifestyyleEssellMinninggand Industries, AdittyaaBirrlaaRetaillThaiRayonndo Thai Synthetics,Thhaii AcryliccFibre,Thhain Carbon Blackk,AadittyyaaaBirrlaaChemicalss(Thailand))LimiteddBirrlaaLaossPulppand PlantationsCompanyyLimiteddIndooPhiilTextileeMills,,Indo Phil Cotton Mills,, InddoPhil Acrylicc ManufacturingggCorporation,and Pan Century Surfactants Inc.
The following are the listed companies:
• PT Indo Bharat
• PT Elegant Textile Industry
• PT Sunrise BuumiTextiles
• PT Indo Liberty Textiles
• PT Indo Raya Kimia
• Swiss Singapore Overseas Enterprises Pte Limitted
• Alexandria Carbon Black Companny SAE
• Alexandria Fiber Company SAE
• Liaoning BirllaCarrbonnComppanyLimitteddBirllla Jingwei Fibres CompanyyLimiteddDomsjö Fabriker
The Indian apparel retail business is poised for consolidation with the recent announcement of Aditya Birla Nuvo’s acquisition of the Pantaloons apparel format. On 30th April 2012, Pantaloon Retail disclosed a stake sale in its Pantaloons apparel format to Aditya Birla Nuvo Ltd (ABNL) in order to alleviate debt and enhance profitability. As a matter of fact, this news had a favorable effect on the share price of Pantaloon Retail, which spiked by approximately 9% upon the announcement.
Before discussing the implications for investors, let’s review the details of the deal: Pantaloons, an apparel retail chain, will be separated from its parent company Pantaloon Retail India Ltd (PRIL). The Pantaloons format is currently found in 35 cities, with 65 stores and 21 factory outlets spanning over 2 million sq. ft. It is projected to generate sales of Rs. 1,700 Cr. for the fiscal year ending June 2012. Furthermore, Aditya Birla Nuvo Ltd (ABNL), the owner of Madura Fashion & Lifestyle, will invest Rs. 800 Cr. through debentures issued by PRIL.
Upon completing the demerger process, the debentures will be converted into equity in the demerged entity. Additionally, the demerged entity will have a debt of Rs. 800 Cr. on its balance sheet, which will be transferred from PRIL. As a result, PRIL’s debt will be reduced by Rs. 1,600 Cr., consisting of Rs. 800 Cr. in debentures and Rs. 800 Cr. taken over by the demerged entity.
Following this, ABNL will make an open offer to acquire a 26% stake in the demerged entity. Once the resulting entity is listed and the debentures are converted into equity, ABNL’s ownership in the company after the open offer will be at least 50.01%.
The entity is expected to become a subsidiary of ABNL and the existing shareholders of PRIL, including its promoters, will retain ownership in the demerged entity. The completion of the proposed transaction is estimated to take 8 to 10 months, pending finalization of the Scheme of Arrangement, due diligence, and necessary statutory approvals. PRIL, which operates various retail chains such as Pantaloons Format, Central, Big Bazaar, Food Bazaar, Home Town, and eZone, also has affiliated businesses in consumer finance, life and non-life insurance, logistics infrastructure, supply chain, and brand development.
PRIL has significantly increased its debt to Rs. 7,846 Cr. by June 30, 2011 in order to expand its retail chains. This has resulted in higher interest expenses and decreased profitability. The company has experienced a decline in margins due to the current high interest rate environment and weak economic conditions, making it challenging for the company to fulfill its debt obligations in the future. As a solution, the management aims to reduce the debt burden and enhance profitability through this deal.
The company will decrease its debt by approximately 20% to about Rs. 6000 Cr through this deal. This reduction in debt will benefit PRIL’s liquidity situation and future profitability. ABNL – Madura Fashion & Lifestyle, which is Aditya Birla Nuvo’s branded apparel retailing business, is one of India’s largest premium-branded apparel players. It has a turnover of over Rs. 1800 Cr and includes popular brands like Louis Philippe, Van Heusen, Allen Solly, and Peter England. It operates around 1000 exclusive brand outlets (EBO) as well as approximately 1250 departmental stores and multi-brand outlets.
The acquisition of Pantaloon apparel format aligns with ABNL’s strategy to become a leading apparel player in India. As a result, Madura Fashion will emerge as the largest integrated branded fashion player in the country, boasting a vast retail distribution network and a total turnover of approximately Rs. 4000 Cr. Pantaloon Retail’s total debt, however, will remain elevated at around Rs. 6000 Cr. In an effort to reduce debt, the company is exploring additional restructuring options, including a potential stake sale in its other subsidiaries.
In short, the deal will temporarily resolve the liquidity problem and improve profitability to some extent. However, ABNL already has a significant debt of more than Rs. 9000 Cr, resulting in a Debt to Net Profit ratio of around 10 in FY-11. This acquisition will further increase ABNL’s debt, potentially impacting its future profitability. On a positive note, the new separate entity will only have Rs. 800 Cr. of debt and a debt to equity ratio below 1. There are expectations for Madura Fashion & Lifestyle to merge with this demerged entity.
If this occurs, it would become the biggest company in the apparel retail industry with less debt and a vast distribution network. In the future, this combined entity could be an attractive option for investors in the apparel sector. However, it is still uncertain how Pantaloons will perform under ABNL’s management and if the merger with Madura Fashion will take place. Therefore, it is advisable for investors to wait until the demerged entity is listed on the stock exchange. The sale of Pantaloons stake clearly indicates the challenging times faced by the retail apparel industry.
And when a large brand like Pantaloons had to sell a portion of its ownership to decrease its debt, the medium-sized apparel companies are facing even more difficult challenges. Our upcoming article on Tuesday will discuss the struggles that mid-sized retailers are experiencing and how their stocks have performed in the past. Keep an eye on this space for that information… To contribute an initial $152 million to acquire a stake in the Pantaloons clothing brand * The deal will assist Pantaloon in reducing its debt by 16 billion rupees * Aditya Birla plans to expand its presence in the Indian retail industry (Includes comments and additional details) By Nandita Bose
Aditya Birla Nuvo Ltd (ABNL), an Indian conglomerate, plans to pay 8 billion rupees ($152 million) to gain control of the Pantaloons Format clothing brand and retail chain. This comes as Pantaloon Retail, the country’s largest retail group, aims to reduce its debt by 16 billion rupees ($304 million) and enable future investments in growth. In response to the deal, a fund manager at SBI Mutual Fund commented on the need for a strong business model, which Pantaloon possesses, and ongoing investments that Birla can provide. Controlled by Kishore Biyani’s Future Group, Pantaloon Retail will retain ownership of its other businesses, including the Big Bazaar hypermarkets, E-zone electronics chain, and Central lifestyle retailer. The decision by the Indian government in December to withdraw foreign direct investment in the multi-brand retail sector has led to Indian retailers like Future Group and Shoppers Stop seeking additional funding. Investors welcomed the news of Pantaloon Retail’s deal, resulting in a 9.35 percent jump in its shares to close at 187.70 rupees.Prior to Monday, the stock had experienced a decline of over 50% since the beginning of 2011. Pantaloon Retail will retain a minority stake in the Pantaloons business, which will have its own separate listing and continue to be managed by them. ABNL will hold a minimum of 50.01% upon completion of the transaction.
The Birla group is a major business conglomerate in India, with investments in various industries such as mobile services (Idea Cellular) and aluminum production (Hindalco Industries). One of its divisions, ABNL, manages the retail business known as Madura Fashion & Lifestyle. The company stated that this division will complement the Pantaloon business. Both ABNL’s Madura Fashion & Lifestyle and ‘PRIL’ (Pantaloon Retail) will collaborate closely to leverage operational synergies. This collaboration will involve areas like back-end operations, supply chain management, and other crucial aspects of the business, as mentioned in a company statement.
Madura’s retail space covers 1.6 million square feet, while the Pantaloons Format business is spread over 2.05 million square feet. ABNL chairman Kumar Mangalam Birla said that they are delighted to have Mr. Kishore Biyani as their partner in the Pantaloons Format business. As part of the transaction, Aditya Birla Nuvo, valued at $2 billion by the market, will subscribe to debt issued by Pantaloon Retail, which will later be converted into equity upon completion of the spin-off process, the companies confirmed.
ABNL is expecting the completion of the deal in eight to 10 months. In addition, ABNL will be making an open offer to shareholders of the newly listed entity, with the objective of increasing its holding to just over 50 percent. The Pantaloon-branded business is projected to generate 17 billion rupees in revenue in the current fiscal year and plans to add 20 stores annually. Last year, ABNL’s Madura Fashion & Lifestyle unit recorded revenue of 21.45 billion rupees. ($1=52.56 Indian rupees) (Editing by Greg Mahlich)
