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Retail labels hunt for funds, but investors are wary

Retail labels hunt for funds, but investors are wary

Mumbai: As the return of shoppers to malls continues unabated, some apparel retailers are looking to raise funds in the financial year beginning 1 April to support expansion plans.

But experts warn that even top labels will not find it easy to dump debt on investors, who are going to be extremely choosy about where they park their money.

Retailers such as Gini and Jony, Koutons Retail India Ltd and Lilliput Kidswear are expected to announce fund raising plans in the new fiscal through initial public offers (IPOs), equity dilution, venture capital and private equity (PE) investments.

While India’s Rs1.3 trillion apparel industry is growing at 10% annually, the one-fifth of it that’s organized is expanding at twice that rate.

“There is a fair amount of interest in the market and a handful of deals can be expected to take place by mid-year as investors are sitting on money," said Anand Raghuraman, a partner and managing director at the Boston Consulting Group.

This will be in sharp contrast to the fiscal ending 31 March. Until 8 March, only one PE deal worth $14 million (Rs63.7 crore) has been recorded in the current fiscal in the retail industry—a drop of 90% from the six deals worth $128 million that were recorded in the previous fiscal, according to Venture Intelligence, a research service that focuses on PE and mergers and acquisitions (M&As).

M&A deals halved from 14 to seven over the same period, and their value dropped by 97% from $102 million to $3 million, according to Venture Intelligence.

“We are hopeful of raising Rs40 crore in the next 15-20 days through 18% equity dilution," said an executive at kidswear brand Gini and Jony on condition of anonymity.

“The company has planned to raise the funds from an IPO for which it proposes to file a DRHP (draft red herring prospectus, which does not have details of either price or number of shares being offered) based on March financials," said Prakash Lakhani, managing director, Gini and Jony Apparel Pvt. Ltd. “No other equity raising has been concretized presently."

Koutons Retail—which will end fiscal 2010 with an inventory of Rs650 crore compared with Rs684 crore a year ago—is another label hoping to raise funds.

“We plan to raise Rs80-90 crore through QIPs (qualified institutional placements) and equity dilution of 7-8% to fund our expansion plans. We will raise the money at the start of the new financial year," said D.P.S. Kohli, chairman, Koutons Retail.

M&As will also witness renewed interest in the next fiscal. Retailers such as the Dubai-based Landmark Group and smaller chains such as Primus Retail Pvt. Ltd said they are already negotiating acquisitions.

“We are in talks with a few brands and will announce at least two acquisitions," said Kabir Lumba, managing director of Lifestyle International Pvt. Ltd, Landmark’s clothing and accessories departmental store format in India

Lumba is looking at increasing the company’s private labels business and his criterion for evaluations is “to have brands that have Rs100 crore or more in revenues and scalable potential to double the revenues".

Primus Retail, which sells brands such as Nike, Reebok and Tommy Hilfiger, plans to increase its presence to 400 stores in the next year from 250 currently, “and two more acquisitions," said Balaji Bhat, its chief executive.

The company’s investors, Citi and UTI Ventures, have been looking to make an exit without success as the retail chain’s inventory and debt increased during the slowdown. “We did look at funding options a year ago, but now have raised it internally," Primus’ Bhat said.

Despite the expansion plans of these firms, the picture is still far from rosy for nearly two dozen other retailers who were caught up in the financial crunch of the past one-and-a-half years and who are now struggling with mounting debts.

Levi Strauss phased out Dockers from the Indian market last year to concentrate on denimwear. GAS, introduced in India by Mumbai-based apparel retailer Raymond Ltd in a 50:50 joint venture with Grotto SpA, shut down its 12 stores. Etam ended its joint venture with Future Group. Lifestyle’s Springfield had 7-10 stores shuttered.

“No investor is willing to take on the debts of retailers. Companies will have to be more transparent, restructure and recapitalize to raise funds," said an expert.

C. Venkat Subramanyam, founder and director, Veda Corporate Advisors Pvt. Ltd, said it would take another 6-12 months before PE funds showed interest in retailers.

“Even when PE investors stage a comeback, I assume that they will be selective and we will see limited action as opposed to across-the-board interest that prevailed last time," he said. “FDI (foreign direct investment) restrictions in retail is also a dampener since it limits the choice of funds."

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