Mumbai: Nitin Kasliwal and his family, owners of apparel and fabric maker S Kumars Nationwide Ltd (SKNL), will sell a minority stake between 10% and 12% in their family holding company Anjaneya Holdings Ltd, as well as part of their stake in its fully owned subsidiary Reid and Taylor (India) Ltd (RTIL) in a public offer by December, a senior company official said.
The funds raised will be used to repay a part of the company’s Rs2,800 crore debt, purchase premium suiting brand Reid & Taylor, now licensed to SKNL by its Scottish owner, and acquire companies both in India and abroad, vice-chairman and managing director Kasliwal said in an interview on Monday.
“As we grow, we may be open to diluting some stake at our holding company level... If this were to happen, we could start with a dilution of about 10-12%,” said Kasliwal who, along with his wife, daughter and son, controls all of the holding company.
The dilution will be “slow” and “we have already spoken to three-four private equity (PE) funds”, says Kasliwal, who took over the reins of the company after a five-way family split of the 57-year-old textile-to-real-estate group among his brothers and cousins in 2005. The family has appointed Deutsche Bank AG and London-based Euromax Capital Global Finance Ltd to work on structures and find PE funds, he added.
Anjaneya Holdings controls a 49.83% stake in the domestically listed Rs.3,860 crore SKNL, which owns clothing brands such as Reid & Taylor, Belmonte, S Kumars and home linen?brand?Carmichael House.
The present debt-equity levels are in line with the industry average, but one of the key risks is pressure on SKNL’s cash flows after a Rs612 crore capital expenditure for two years, wrote analysts Abneesh Roy, Nitin Mathur and Harsh Mehta at brokerage Edelweiss Capital Ltd in a report released on 23 July.
“Over the last few years, we have raised substantial monies in the form of debt and equity, and have also had substantial internal accruals. Going forward, our source of funding will be a combination of all three,” Kasliwal said, adding that the firm will be “very careful” in ensuring a healthy leverage.
In June 2008, SKNL sold a 25.6% stake in RTIL for $211 million (Rs990 crore today) to Government of Singapore Investment Corp. Pte Ltd (GIC), the island-nation’s sovereign wealth fund, to repay loans, build brands and expand RTIL capacity. Around Rs790 crore was used to completely repay loans of RTIL and exit SKNL from a corporate debt restructuring plan.
SKNL, which has the right to use the Reid & Taylor brand in India in perpetuity, has also started negotiations to buy the international rights from Scottish company Reid and Taylor.
An initial public offer (IPO) by Reid and Taylor slated for the end of 2010, will comprise three parts, Kasliwal said.
“The main part will be a primary market offering into Reid and Taylor for its growth. The second will be a small secondary offering by SKNL, funds from which will be used to retire SKNL debt, (and) a small secondary offering” by GIC is also on the cards, he said, but added that he has not heard from GIC yet.
JPMorgan Chase and Co., Deutsche Bank, UBS AG, HSBC Securities and Capital Markets (India) Pvt. Ltd, JM Financial have been given the mandate for the IPO.
JPMorgan analysts Princy Singh and Dinesh Harchandani, in a report on 14 July, said a delay or cancellation in the Reid and Taylor IPO could likely “have an adverse impact” on SNKL valuations.
SKNL has total debt of Rs2,800 crore with average cost of borrowing of 10%, which includes Rs700 crore at 7% from the government sponsored textile upgradation fund.
“Our debt-equity philosophy going forward is 1:1 and to that extent we will continue to raise both debt and equity. I am not particularly worried of dilution at the promoter level such that we continue to be in absolute control and we continue to run a profitable enterprise whose value is constantly increasing,” Kasliwal said.
“As a promoter group, we have only added to the total number of shares that we own and have no intention of selling even one share and therefore the percentage of ownership towards that end remains notional,” he said.
He also said the family would not reduce its stake below 51% in the holding company, including 11 manufacturing plants worldwide. SKNL has six units in India, two in the US and one each in England, Scotland and Canada.
“Group SKNL is aiming for a 35% CAGR (compound annual growth rate) over the next five years and has set an internal target of reaching $5 billion in the top line. The existing businesses that we have on hand are on a traction to achieve a turnover of $3.5 billion over five years and hence we will need to add another $1.5 billion worth of businesses in the next three-four years,” he said.
Bharat Chhoda, chief manager, equity, at brokerage ICICI Securities Ltd, said, “Integrating possible new foreign acquisitions with Indian operations will be a challenge because of difference in geographies and regulations.”
He expects the 25-30% growth in volumes to drive SKNL’s business this year, but cautions about taking on too many brands. “So far, their strategy is to be available in each price point and they have managed brands well, but if they go on adding brands then it will become a problem. Somewhere they have to think about consolidating the existing brands,” Chhoda said.