Aditya Birla Group drives competition to add W owners to cart
Aditya Birla Fashion is now the frontrunner to acquire TCNS Clothing Co, owner of the listed women’s branded apparel retailer that owns brands such as W, Elleven and Aurelia, pulling ahead of Nykaa in what has eventually narrowed down to a two-horse race for the company, people aware of the development told ET. Once concluded, this could well be the largest branded apparel buyout by the $60-billion aluminium-to-telecom conglomerate.
Promoters of the retailer, the New Delhi-based Pasricha family, and PE investor TA Associates together own 61.24% of the company.
Will Trigger Open Offer
They had mandated Credit Suisse to find a strategic or financial buyer. The transaction will also trigger an open offer for an additional 25% of the company. If the open offer is fully bought into, the new investor could own up to 86.24% of TCNS, for Rs 3,016 crore. The current market capitalisation of TCNS Clothing is Rs 3,507.16 crore.
However, the promoters are seeking a significant control premium, and that is delaying the ongoing negotiations, said people in the know. Disagreements over valuations could also be a potential deal breaker, they said.
“The company keeps on evaluating various opportunities on an on-going basis and in this regard consult with various advisors,” said Amit Chand, chief financial officer, TCNS Clothing Co. “As and when any event becomes a reportable event, the company informs the same to the stock exchanges in accordance with applicable provisions of the applicable Sebi regulations.”
An Aditya Birla spokesperson and the country head at TA Associates declined to comment. Mails sent to Falguni Nayar, CEO, Nykaa, remained unanswered.
Avendus is working with Nykaa on this transaction.
Local media reports last month said that several retailers, including Trent, Reliance, Aditya Birla Fashion and Nykaa, and PE firms TPG and Advent were eyeing the TCNS stake.
“The non-binding bids went in during Diwali. The business, however, has not performed as it had promised even though the recent quarters have seen an uptick, largely on account of festivities and offices reopening,” said the CEO at a rival retail chain that evaluated TCNS but did not bid. “The valuation demand has been a sticky point. After all, business fundamentals drive demand, and that is why there have been several stops and starts.”
Sources said there are no exclusive deals signed yet with any party. The promoters and TA Associates may retain a small stake for future upside but that’s not final yet. TA Associates bought a 40% stake in TCNS in 2016 for $140 million, but the private equity firm sold a part of its stake during the company’s initial share sale in 2018.
W and Aurelia are the company’s most significant brands, contributing 52% and 41%, respectively, of its business in the September quarter.
FASHIONING A NEW LINE
About seven years ago, the Aditya Birla Group restructured its retail business by carving out the apparel-making Madura Fashion and Lifestyle division from Aditya Birla Nuvo (ABNL) and merging it with listed loss-making Pantaloon. This created Aditya Birla Fashion & Retail (ABFRL), the country’s largest listed branded apparel company, with current annual sales of Rs 8,136 crore.
The company has segmented its business into six sub-categories — lifestyle, Pantaloon, athleisure, youth fashion, super premium and ethnic. However, most brands are focused on western style clothing, a segment significantly smaller than the overall women’s ethnic wear in the mass market.
The company’s lifestyle division runs nearly 3,200 stores for brands including Louis Philippe, Van Heusen, Allen Solly and Peter England. In addition, department store chain Pantaloons has another 396 stores, while the company also runs women’s fashion brand Forever21.
In the ethnic segment, the company acquired Jaypore, a premium craft-based artisanal brand, and also invested in designer brands Shantanu & Nikhil, Tarun Tahiliani, Sabyasachi and Masaba. The company also bought the India business of global sportswear brand Reebok a year ago, and has long-term exclusive partnerships with brands such as Ralph Lauren, Hackett London, Ted Baker, Fred Perry, Forever 21 and American Eagle.
“The lifestyle and apparel space has opened up a host of new growth categories in the recent past such as value category, occasion wear, and online space. While a few companies have concentrated on select categories to drive operational focus, some large conglomerates such as Birla Group, Reliance, and Tata have tried to include a wider landscape to offer balance sheet support,” said a recent investor note by Motilal Oswal. “ABFRL’s strong execution capability is reflected in its ability to scale up a series of strong brands in the last ten years.”
In women’s apparel retail, the price band of Rs 399-1,499 is the key focus of the majority of fashion retailers. Max, Reliance Trends, Westside and H&M control a bulk of the market, although players such as Biba and Anita Dongre are strong in the premium sub-segment.
The women’s apparel market is largely dominated by two segments: sarees that are estimated to expand at 6% and ethnic wear (salwar, kurta, dupatta, ethnic dresses), expected to expand at a rate nearly double of the other – at 11%.
Indian wear, initially largely restricted to the older age segment, has also found acceptance among younger consumers as companies widened their portfolio to sell fusion clothing — a mix of modern and traditional wear — instead of just ethnic, which are reserved for special occasions. One reason could be the steady use of the attire as de rigueur office wear. Second, Indian consumers are increasingly getting steeped into local traditions, signalling the potential of a burgeoning ethnic wear market.
However, branded clothing accounts for less than a quarter of the women’s market today. But fuelled by demand-side dynamics such as shifting consumer behaviour, a steady increase in the number of women professionals and disposable incomes, the share of branded women’s apparel segment is expected to expand six-fold in the next decade.