Bengaluru: Aditya Birla Fashion and Retail (ABFR) has entered into a commercial pact with Flipkart where it will raise Rs 1,500 crore by selling nearly 8% stake to the e-commerce platform. Owned by the US-based Walmart, Flipkart is paying a premium of nearly 34% for each ABFR share at Rs 205 compared to Thursday’s close on the BSE (24% from Friday’s), according to regulatory filings.
Industry executives said this deal underscores the importance of e-commerce for fashion sellers as well as a bigger omni-channel play in a Covid-hit retail universe. TOI first reported in its Thursday edition that ABFR was in talks to sell a minority stake to the Bengaluru-based e-tailer and boost its exposure online.
This deal includes pre-emption rights, meaning Flipkart can buy more shares before they are offered to the public and the e-tailer will also have the right of first refusal for a period of 1-5 years “from the date of allotment of equity shares”, according to ABFR. Once the deal is approved by shareholders and regulators, Flipkart will also have the option to appoint a board observer.
Beyond its current business-to-business (B2B) arrangements with Flipkart India, ABFR has entered into a pact with the e-tailer for sale and distribution of its brands on the platform. ABFR owns Pantaloons and sells brands like Allen Solly, Peter England, Louis Philippe and Van Heusen in India.
Once approved, the conglomerate would have raised Rs 2,500 crore in the current fiscal. This will be used to strengthen its balance sheet and further scale up its existing businesses as well as expand in emerging high-growth categories such as innerwear, athleisure, casualwear and ethnic wear.
For Flipkart, this will enhance the range of fashion brands offered on its group platforms, including Myntra. The promoter and promoter group companies of ABFR will hold over 55% stake in the firm after issuance of shares to Flipkart, ABFR said. “This deal also draws the battle lines in this space among Walmart’s Flipkart, Amazon India and Reliance Industries,” a senior industry executive said.
Flipkart recently picked up a 27% stake in Arvind’s Flying Machine brand, while Amazon holds a minority stake in Shoppers Stop as well as in a Future Group entity, though that’s run into a legal tussle over Reliance Industries buying assets of Future Group. Then, Reliance has a strong retail presence through Reliance Retail and it is scaling up its e-commerce venture JioMart fast, selling groceries, electronics and apparels.
On Friday, the ABFR stock ended with a gain of over 7% to close at Rs 165 per share on the BSE. In a statement, Aditya Birla Group chairman Kumar Mangalam Birla said the Flipkart deal is an “endorsement of the growth potential of India, while it also reflects ABFR’s strong conviction in the future of the apparel industry in India”.
“Fashion retail in India 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. Rapid growth of technology infrastructure will further accelerate this process,” said Birla.
Flipkart group CEO Kalyan Krishnamurthy said, “Through this partnership with ABFR, we will work towards making available a wide range of products for fashion-conscious consumers across different retail formats across the country.”