Bangalore: Apparel maker Arvind Ltd has divested its 40% stake in VF Arvind Brands Pvt. Ltd, which sells denim brands Lee and Wrangler in India, to its partner VF Mauritius for Rs257 crore and will use the proceeds to pare debt.
VF Mauritius, a subsidiary of global apparel firm VF Corp., had entered into the 60:40 joint venture (JV) agreement with Arvind in September 2006. It had the right to acquire shares of Arvind after five years under the JV agreement.
The funds from the stake sale would be used by Arvind to repay debt, according to Jayesh Shah, director and chief financial officer. The company currently has about Rs2,000 crore of debt.
“Our global association with VF would continue because we supply them all kinds of fabric and even garments for the US and Europe markets,” said Shah.
Arvind has 21 international and Indian brands in its portfolio and is in talks with several global firms to bring more foreign brands into the country, Shah added.
In September, Tommy Hilfiger group bought the Murjani Group’s 50% stake in the latter’s JV with Arvind for an undisclosed sum. Shah expects Arvind’s revenue to cross Rs5,000 crore in this fiscal from Rs4,000 crore in 2010-11 on steady growth in its retail and brand businesses.
Arvind, given a choice, would have preferred to retain the joint venture because it was profitable and added value to the company’s portfolio, analysts said.
“Arvind nurtured the JV very well and sustained the profitability through the years, doing well for both the brands that they sold as well as for themselves,” said Harminder Sahni, managing director, Wazir Advisors, a management consultancy.
The firm intends to scale up the retail and brands component in its total portfolio to 40-45% from 25-30% currently in the next two to three years.
Several global brands such as Nike, United Colors of Benetton, Wrangler and Lee entered India through licensees in the late 1980s. While Nike and Benetton are now subsidiaries of their respective global parent firms, VF Corp—which owns the Lee and Wrangler brands—was the majority partner in the JV with Arvind.
While many international firms sought help from Indian partners and set up JVs as a launchpad for their brands, buybacks have taken place when the association has been fruitful and made money, said Sahni.
The premium ready-to-wear market in India was estimated at Rs.33,000 crore as of March 2010 and is growing at 22% a year, Mint reported in September.
Arvind’s stock on the Bombay Stock Exchange ended 0.47% lower at Rs106.7 on Wednesday, while the benchmark Sensex lost 0.09% to 17,464.85 points.
Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private-equity and venture-capital activity in India.