Home >Companies >Carlyle to invest up to `250 crore in Mufti

Mumbai: US-based private equity firm Carlyle Group has agreed to invest about 200-250 crore in Credo Brands Marketing Pvt. Ltd, which owns Mufti, the casual wear brand. The investment is awaiting approval from the Foreign Investment Promotion Board (FIPB), according to three people who did not want to be identified.

When the deal closes, it will be Carlyle Group’s first investment in an apparel brand in India.

“Carlyle is buying the 35% stake that the company’s existing investors own. FIPB approval takes four to six weeks," said one of the three persons cited above.

In December, Mint had first reported that investors in Credo Brands are looking to sell their 33% stake to other private equity (PE) funds, and that Mumbai-based JM Financial Institutional Securities Pvt. Ltd has the mandate for the transaction. In an interaction with Mint at the time, Credo Brands founder and managing director Kamal Khushlani said the company’s investors are looking for an exit and are holding talks with potential buyers. Bennett, Coleman and Co. Ltd (BCCL), which publishes The Times of India and The Economic Times newspapers, and some friends own 35% in the company, he said. BCCL is a competitor of HT Media Ltd, the publisher of Hindustan Times and Mint.

Repeated calls and text messages to Khushlani over the last two days did not elicit any response. Mails sent to Shankar Narayanan and Devinjit Singh, managing directors of Carlyle in India, did not elicit any response.

Credo Brands, which was started in 1998, closed financial year 2013 with a revenue of 235 crore and expects sales of nearly 280 crore in the year to 31 March 2014. The firm, which focuses on shirts, jeans, t-shirts, sweatshirts, sweaters and jackets, has over 200 stores and a presence in 1,200 supermarkets such as Shoppers Stop, Lifestyle and Central departmental stores.

Venture capital and PE firms have consistently shown interest in the apparel space, as a proxy of domestic consumption demand. Investors pumped in $115.4 million in 15 apparel firms in 2013. They have already invested $87.7 million in five such transactions in the first two months of this year, according to VCCEdge, an investment tracker.

In one of the largest private equity investments in the Indian ethnic wear market, last year, PE firms Warburg Pincus and Faering Capital invested 300 crore in Biba Apparels, a firm engaged in women’s and girls’ ethnic wear. PE firm General Atlantic bought Kishore Biyani-led Future Ventures India Ltd’s stake in apparel brand And Designs India Ltd (AND) for an undisclosed amount. In 2012, L Capital and PremjiInvest bought a stake in Fabindia Overseas Pvt. Ltd. Currently, Avigo Capital Partners is in talks with PE firms to sell its majority stake in casual wear company Spykar Lifestyles Pvt. Ltd.

Typically, an apparel brand commands a double-digit Ebitda multiple in terms of valuation. Clarity on foreign direct investment rules for the single-brand retail segment has further strengthened PE’s interest. In January 2012, India allowed 100% investment in single-brand retail.

“Apparel brands are a consumer play and PE investors are clearly preferring consumer product firms and brands that are into the B2C (business to consumer) business," said Srikanth Narasimhan, director, Veda Corporate Advisors Pvt. Ltd, an investment bank. Apparel companies need capital for scaling up as well as for marketing expenses and therefore, PE capital is in demand, he said, adding, “There is a stronger brand loyalty in apparel segment. People go back to the same brands and often do repeat purchases."

According to Narasimhan, brands can be good acquisition targets and are therefore seen more favourably by investors from an exit point of view.

“If one backs a decent brand, there is a possibility of generating good returns in three to five years, the typical investment horizon of PE firms," he said.

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