The colour of money is drawing the fashion world closer to the stock markets.
Two Delhi-based fashion designers and an upmarket fashion store are corporatizing to take advantage of the boom in private equity in India and overseas, and raise money to expand exclusive retail outlets that showcase their products.
Shantanu Mehra and Nikhil Mehra, brothers and design partners, who have designed clothes for movie and sports stars, such as Amitabh Bachchan, Hrithik Roshan, Leander Paes and Irfan Pathan among others, are now planning to use the private equity route to help fund an expansion in the face of escalating real-estate costs, which has become a barrier to retail expansion.
“We are looking at issuing convertible preference shares with a return of 15%,” says Shantanu. The company will issue these shares, which will offer private equity investors a fixed 15% return in the earlier years and will convert later into ordinary equity shares when the benefits of the expansion start getting reflected in the profits. “Later, this will be followed by an IPO,” says Shantanu, speaking of a public offering of shares.
The designer duo currently has two signature stores at prime locations in New Delhi, besides having a strong presence in couture stores in India and abroad. Internationally, the label is available in Dubai, Kuwait, Tokyo, Switzerland, Birmingham, London, Jeddah, New York and Vancouver, the brothers said. They plan to open seven stores in India and three abroad by 2010, using the funds raised. “We would ideally need around Rs25-30 crore for our expansion plans,” said Shantanu.
Meanwhile, Kimaya, a chain of six fashion stores across three cities, is also planning an initial public offer (IPO).
“We were approached by private-equity players in the past but we have decided to go for an IPO in 2009 for our expansion plans,” said Kimaya’s promoter Pradeep Hirani. By March 2008, Kimaya plans to have 15 stores, including three new ones in West Asia. It has one overseas store now. “We are close to acquiring a majority stake in three Indian designer firms,” Hirani added.
According to him, Indian designers increasingly want to scale up their operations to compete with international labels but lack the resources even as they are bracing for an explosion in foreign brands, especially in apparel and accessories.
Retail consulting firm Technopak estimates that the Indian market for branded designer wear is worth around Rs1,400 crore a year and growing at 50% annually.
India is home to more than 83,000 people whose net worth is more than a $1million (Rs4 crore), according to a 2006 study by Merrill Lynch and Capgemini; the country’s luxury market is estimated to be growing at 20% a year. International luxury retailers, including Louis Vuitton Moet Henessey, Chanel, Bulgari, Valentino and Fendi, have all set up shop in India and more, such as Zegna, are coming. A number of these luxury apparel retailers are tying up with partners: Italy’s Grotto SpA and Raymond Ltd will bring in GAS apparel and accessories while Gucci has a tie-up with the Murjani Group.
The brands are also finding, albeit slowly, that the right retail environment is being created for luxury brands as part of a boom in mall-building in the country. For example, Pantaloon Retail India Ltd plans to convert Crossroads, a Mumbai mall it recently acquired, into a luxury mall while Shoppers’ Stop Ltd plans to start a chain of luxury stores called Verdi, which will retail around 40 foreign premium brands. Pantaloon saw revenues from its lifestyle retail segment grow to Rs181.72 crore with operating profits of Rs27.7 crore in the segment for the quarter ended 31 December 2006 alone. Provogue (India) Ltd, a premium-end apparel retailer, posted sales of Rs72.01 crore and a net profit of Rs7.52 crore for the quarter ended 31 December 2006.
Meanwhile, private equity firms have become increasingly active in buying global fashion companies. Brands such as Tommy Hilfiger, Jil Sander and Jimmy Choo have all been acquired by private-equity firms. Last week,a private equity fund Permira said it will buy a 29.6% controlling stake in the Italy-based Valentino Fashion Group for $1.06 billion.