The Flipkart unit of Walmart Inc. on Friday agreed to buy a 7.8% stake in Aditya Birla Fashion & Retail Limited (ABFRL) for Rs 1,500 crore, a move that would help the online retailer expand its position in the apparel business to brands Will do. Alan Solly and Van Heesen as it battles the Amazon for dominance in India.
The deal will help Aditya Birla Fashion to cut its debt and expand into new apparel categories. The company said in a statement that the fund would be raised at Rs 205 per share.
Flipkart, which also operates India’s largest online marketplace Myntra, will team up with Aditya Birla Fashion to sell and distribute its brand.
The transaction gives Flipkart a significant edge over Amazon, which is trying to challenge the dominance of the Walmart-owned company in online fashion retailing. “The deal offers Flipkart and Myntra a lot of leverage in terms of offering the right brands, supply chains, etc. However, the main issue is that if online play is not integrated into the business model, offline retail is wasted. Gets, ”Ankur Bisen, senior consultant, retail and consumer, at management consulting firm Technopak.
In July, Flipkart owned Flying Machine brand Arvind at Youth Brands. Purchased a stake in 260 crores.
Both Flipkart and Amazon are buying minority bets at offline multi-brand retailers to strengthen their presence in the brick-and-mortar segment, where foreign investment is limited to 49%. Amazon and private equity firm Samara Capital acquired the supermarket chain from the Aditya Birla Group in 2018. The e-commerce giant also bought bets in the departmental store chain Shoppers Stop and Future Coupons Pvt. Limited
With the latest acquisition, Flipkart and Aditya Birla Fashion can also focus on co-creation of new youth-centric brands, which will sell both offline and online, said a person familiar with the deal-making process.
“Retail companies still need capital. So, from the company’s (Aditya Fashion) point of view, it is a financial reason that they are doing the deal, while investors like Walmart are doing it more for strategic reasons, “Harjinder Sahni, Founder and MD, Wazir Advisor.
Aditya Birla Fashion shares closed up 7.5% at Ad 165 on the BSE on Friday. Retailers in India have for months been rooted as a Kovid-inspired lockdown crush business at retail outlets. Formal wear, where Aditya Birla is an important presence of fashion, has suffered as curbs have driven consumers to work from home, a dismal demand for office wear.
Aditya Birla draws 6% of its business from sales through fashion e-commerce platforms.
“This will significantly reduce the company’s debt-equity profile and overall debt,” said Avnish Roy, senior vice-president, Edelweiss Securities. The branded apparel company’s net debt as of June 30 was 3,250 crore, the company’s top management said in its first-quarter earnings call.
Through this deal with ABFRL, Flipkart worked towards providing a wide range of products to fashion conscious consumers in various retail formats, which Flipkart Group CEO Kalyan Krishnamurthy said in a statement.
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