Mumbai: Denim maker Arvind Ltd, a Sanjay Lalbhai group company with interests in retail and leading textile brands is investing Rs600 crore in those businesses as part of an overall expansion plan through 2012, said a senior company official. To fund the expansion, which will include new retail stores, the company plans to spin off its retail and brands business into a separate entity and has hired Enam Securities Pvt. Ltd to look for possible investors.
”We are planning to hive off our retail and brands (units) to unlock value and to focus better,” the official said on the condition he wouldn’t be identified. “Retail and brands business is very different from the company’s age-old core business of textile. With the hive-off, there will be more value addition and focus on the retail and brands business.”
The retail and brands businesses—including Megamart, Megamart Outlet Centre, Flying Machine and Newport among others—contribute about 15% of the total revenue of Arvind Mills, which was recently renamed Arvind Ltd. The company is targeting revenue of Rs600 crore from these for fiscal ’09, from a year-ago revenue of Rs2654.96 crore.
“It (the expansion plans) is still at a preliminary stage,” said the official, but added that the new structure would likely be in place in a year’s time.
Lalbhai, chairman and managing director of the company, declined to comment on the expansion plans or on the plans to merge the units into a single independent business entity. Mint couldn’t obtain further details of the expansion plans.
“As of now, we have funded our expansion through internal accruals but for our further expansion, we will decide as and when needed,” the senior official added. The official also said it was too early to say whether the company would have an initial public offering of shares. “We are working on different strategies but looking at the unpredictable market it is difficult to predict anything,” he said.
Arvind is one of the largest denim makers in India, but has shifted its focus to brands and retailing since the past few quarters following a downturn in its denim business.
Arvind Singhal, chairman of KSA Technopak Advisors Ltd, a New Delhi-based retail consultancy, said the textile business has its own dynamics and by hiving off retail and brands, which are are doing well, the company could focus on them.
“It would be easier for the company to raise money once they hive them off,” he added.
By 2012, Arvind plans to have around 30 Megamart Outlet Centres of about 40,000-50,000 sq. ft each and 250 Megamarts, with 1,500-5000 sq. ft each, up from the current two and 100, respectively. The brands unit currently has 12 labels.