Arvind to sell 10% stake in brands business to Multiples PE for Rs740 crore

The brands business is the second asset after real estate that Arvind is unlocking to create shareholder value


Arvind’s chairman and managing director, Sanjay Lalbhai. Photo: Jaydip Bhatt/Mint
Arvind’s chairman and managing director, Sanjay Lalbhai. Photo: Jaydip Bhatt/Mint

Mumbai: Leading textile and branded apparel company Arvind Ltd on Tuesday announced that it is raising Rs740 crore by selling 10% stake in its brand business arm to Renuka Ramnath-led private equity firm Multiples Private Equity.

This is the second asset after real estate that the Ahmedabad-headquartered company is unlocking to create shareholder value. Last year it listed Arvind Infrastructure Ltd.

The brands business portfolio includes apparel brands such as Calvin Klein, Tommy Hilfiger, US Polo Assn., Ed Hardy, Arrow, Gant and Nautica. “This is a long-term strategic investment,” said Sanjay Lalbhai, chairman and managing director of Arvind, while explaining that getting in an external stakeholder will see the business get its own separate board with dedicated minds that will bring in diverse thoughts, more rigour and sharper focus to grow the business.

The transaction will also bring down the group’s debt down from current level of Rs3,200 crore to Rs2,460 crore, which is a debt to equity ratio of 2.5, “which is comfortable”, said Lalbhai.

The brands business clocked revenue of Rs2,300 crore in financial year 2015-16. The revenue has been growing at a compounded annual growth rate of 25% over the last three years and is expected to maintain the growth trajectory to close financial year 2017 with revenues of Rs3,200 and have revenues of Rs9,000 crore by 2022, Lalbhai said.

The stake sale gives the brand business arm an enterprise valuation of almost Rs8,000 crore at one year forward multiples of 20-25 times, said the Jayesh Shah, chief financial officer, Arvind Ltd.

This is the second biggest investment in the fashion space this year.

Earlier in August, US-based PE firm TA Associates Management Lp invested $140 million for a minority stake in TCNS Clothing Co. Pvt. Ltd, a leading women’s apparel platform that sells popular fashion brand ‘W’.

In February, Premji Invest, an existing investor in the Fabindia, bought an additional 8% stake in the company from exiting investor L Capital’s 8% for around Rs360 crore.

The Indian consumption story has attracted other major PE funds too like Everstone Capital,Warburg Pincus and US fund General Atlantic who have invested in brands like Ritu Kumar, BIBA Apparels Pvt. Ltd and Anita Dongre’s firm House of Anita Dongre.

“Fashion businesses are attracting good valuations as they are a part of the larger consumer story that investors are betting on,” said Pankaj Jaju, founder, Metta Capital, which was the investment bank for the deal.

The parent firm Arvind Ltd had a turnover of approximately $1.3 billion in financial year 2015-16. The company has a portfolio of owned and licensed brands. Its own brands include Flying Machine, Colt, Ruggers and Excalibur.

This is the second investment by Multiples PE in Arvind.

In January 2014, Multiples PE had picked up a little under 4% stake in Arvind for around Rs150 crore by purchasing shares on the stock market.

Multiples PE has recently set a final close of $690 million for its second India-focused fund against an earlier target of $650 million. It is one of the largest sector-agnostic private equity investment corpuses ever raised for India. The fund was raised through two vehicles—a core fund of $550 million and a co-investment pool of $135 million.

Shares of Arvind Ltd closed at Rs.403.60 per share on the BSE, up 12.27%, while benchmark Sensex closed at 28,091.42, down 0.31% on Tuesday.

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