Business & Strategy

Kishore Biyani Lives to Fight Another Day

Times are tough and Kishore Biyani has had to sell the business he started his retail journey with

Samar Srivastava
Updated: May 1, 2012 08:20:44 AM UTC

After studying law I vectored towards journalism by accident and its the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably new tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me there are plenty of those in Asia at the moment. Bouquets and brickbats are welcome at samar.srivastava@network18online.com

Last month, with his back to the wall Kishore Biyani, India’s raja of retail mandated JM Financial with the task of reducing the Future Group’s Rs.8,000 crore debt.

To be sure, with most of Biyani’s businesses still in the investment stage this is no mean task. But then, if you’re Nimesh Kampani, the boss of JM Financial, India’s top industrialists are only a phone call away. So while others at JM were working at ways to reduce Biyani’s debt load Kampani is said to have personally brokered a deal between Kumarmangalam Birla and Biyani.

On 30 April Aditya Birla Nuvo picked up what should eventually translate into a controlling stake in Pantaloons apparel business for Rs.800 crore. The new entity (i.e. Pantaloons apparel business separated from Panatloon Retail) would be listed on the stock exchange and after making an open offer Aditya Birla Nuvo aims to pick up a controlling stake. As part of the deal Biyani would reduce his debt load by Rs1,600 crore. 

With the government shelving, for now, its plans to allow foreign investment in multi-brand retail this is the first step of consolidation in the retail sector that many analysts had forecast. For Kumarmangalam the absence of foreign investment has meant that he’s picked up Pantaloons for a song. On the other hand for Biyani has sold his crown jewel.

Pantaloon Retail and Aditya Birla Nuvo declined to comment as both companies are in their silent period before reporting year-end results.

“In one shot Madura has gained a formidable retail presence,” said an analyst who declined to be named. Madura is Aditya Birla's apparel retail business that has in its portfolio brands like Louis Philippe and Allen Solly. It's been on a rapid growth clip – last years revenue stood at Rs.2,145 crore – and has been looking to grow its retail presence rapidly. Pantaloon’s with its well established national footprint fits the bill perfectly. One of the reasons Pantaloon’s apparel business was profitable was because over the years it had moved heavily towards stocking private labels. Now, with Madura it gets a ready made stream of marquee brands that would allow it healthy margins. “If they execute this right imagine a Shoppers Stop kind of businesses in brand but with private label margins,” he said.

For the time being Biyani maintains control. In an encouraging sign for the markets Rakesh Biyani and Kailash Bhatia will continue to run the business.

Rakesh is known to be an extremely methodical numbers driven executive whose style is often at odds with the gut-driven Kishore. Kailash Bhatia, the man behind brands like Weekender and Colorplus is the merchandising brain behind Pantaloons.

Expect regular reviews and target setting. As one top level executive who was with Pantaloons told me recently, “I worked there for so many years and never had one business review.” Rakesh will have his task cut out, managing the over three months of inventory that has piled on with Pantaloons. The two companies, Pantaloon Retail and Madura will work closely to derive operational synergies.

The news was announced after markets closed but through the day rumours of an impending deal sent the Pantaloons stock soaring 10 percent to Rs188. This was because investors believed a deal would result in investment in Pantaloon Retail. It remains to be seen how investors react once they realize that Pantaloons apparel business would be carved out and leaving them with formats like Food Bazaar, Big Bazaar and Home Town that are not yet profitable.

* For purposes of clarity, Pantaloon refers to Pantaloons apparel businesses, and Pantaloon Retail refers Food Bazaar, Big Bazaar, Home Town and other businesses.

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