Group and grow!

Taking up stakes in companies of corresponding nature or directly acquiring it, seems to be the flavour of this business season, reports Vijaya Naidu

Businesses are taking some sharp turns and twists. One can say that its time for the biggies to pull their socks and check all their corners. The most recent and prominent example is the UB group buying Shaw Wallace. It’s interesting to watch this phenomenon showing a presence in the apparel industry too. Raymond group having a basket of varied industries took stock of its position and eventually bid farewell for some of the weak parts for the good ones. The money they earned from these deals increased their prospects to build better on the existing companies. First, it was Color Plus, the high-end casual wear brand, and the management does not deny plans to acquire brands in categories such as womenswear and kidswear too. Nabankar Gupta, group president and whole time director, Raymond, does mention, “We are looking at possibly women’s and kid’s wear but today we are primarily a menswear company. Whether we take an acquisition route will depend on what opportunities come our way.” But the trend that has caught the fancy of the big players is, taking stakes in related companies. The prominent examples from the apparel industry are Bennett, Coleman and Co, acquiring stakes in Pantaloon and Indian Terrain; Pantaloon buying stakes in Planet Sports, Indus League, Galaxy Entertainment, etc and probably many more will surface eventually. Bennett, Coleman & Co (BCCL) has struck deals to acquire a 4.53 % stake in Pantaloon Retail (India) and 12 % in Celebrity Fashions, makers of the Indian Terrain clothing brand. A company official said the Pantaloon deal is aimed at raising funds for expansion. Pantaloon, which started as a menswear maker in 1987 is now a leading retailer running stores, hypermarkets and food bazaars. C P Toshniwal, head of corporate planning at Pantaloon said that the company plans to increase its space capacity to 3 million sq ft from 1 million over the next 18 months.

V Rajgopal, MD, Celebrity Fashions, which owns Indian Terrain, on the association with BCCL said, “This partnership will help us establish Indian Terrain as a brand for the global Indian, and for all the values it stands for, such as style, design and relevance of fashion. If you can’t take the brand message across in sufficient velocity, the brand will never get built.” On the other hand Celebrity Fashions bought the garmenting division of Eicher. Eicher which was not basically into garments, wanted to sell the unit and Celebrity Fashions keeping its expansion in mind took over the opportunity.

On the other end, Pantaloon Industries is picking up ICICI Venture Fund’s 68% stake in Bangalore based apparel company Indus League Clothing for Rs 24 crore, adding to the enterprise valuation of Indus League at Rs 35 crore. Draper International holds a 10% stake in the company. Another 2% is with the other seed capital provider, Dalmia Cements. The senior management and promoters of Indus League hold the balance 20%.

Kishore Biyani, Pantaloon (Retail) India, is said to have initiated talks with Draper to acquire the latter’s stake in Indus League. However, at this stage, there is no proposal to buy out Dalmia Cements stake or that of the promoters, added sources.

Indus League expects the Pantaloon alliance to give a distribution heft to its brands Indigo Nation and Scullers. Pantaloon, on the other hand, in expected to benefit form the brand bandwidth that the Indus League management will bring to the table. In addition, the company also has plans to launch new brands over the next couple of years. Pantaloon Retail, a pioneer in organized retail with formats such as departmental stores-Pantaloon, discount stores like Big Bazaar, food stores such as Food Bazaar and Central Chain of seamless shopping malls, has gone ahead to buy 49% of Planet Sports a leading sports and fashion retail company. Speaking on this acquistion, Kishore Biyani, chief knowledge officer, Pantaloon Retail says, “The strategic alliance is going to change the face of branded lifestyle retailing in India. Ved Prakash Sharma’s (chairman, Planet Sports) retail expertise, as witnessed in South East Asia, will create a landmark in the already booming retail sector.” Sharma adds to this saying, “The fact that Planet Sports will now be working in synergy with Pantaloon will give a leverage and a strategic advantage to both the companies.” With globalization, acquisitions are perceived beyond borders. Mumbai based Zodiac Clothing Company has acquired a Dubai-based shirt manufacturing company. The primary objective of the acquisition is to give a diversified manufacturing portfolio to overseas buyers who are keen to buy from different countries and an overseas base would also reduce the lead-times. The step was primarily to tune to the quota free era.

There is also Pioneer Embroideries, one of the largest manufacturers and exporters of embroidered fabrics and laces, buying a South Korean company, which manufactures value-added embroidery products. The pact size has been estimated at Rs 20 crore. Senior company executives are in South Korea to finalize the pact. The acquisition is mainly aimed at ramping up capacities to produce specialized embroidery products. The South Korean producer has a capacity of 3,300m stitches per annum. The acquisition will enable Pioneer to increase its embroidery capacity by almost 33%. A major part of the company’s expanded capacities would be used to fulfill demand from the domestic retail business. Leaving little room for competition, players are looking at unique ways to retail their position at the top. In such a scenario, the benefits reach both ends. For the one buying the stake is investing in building more power and bringing in new avenues for development and growth and at the receiving end, it is opening of new channels of development, exposure and growth. So, we are seeing a very prominent phenomenon of grouping and growing. Will this be the code to success? We have to just wait and watch.