Saturday, May 5, 2012

Kumar Mangalam buys synergy for AB Nuvo

Kumar Mangalam Birla
The year 2012  will be remembered by two main mile stones in the history of Indian Corporate. One, exit of Ratan Tata who took the challenge of competition with opening up of Indian Economy and placed the Tata group to new heights. Two, the visibility of the efforts of consolidation of “Aditya Birla Group” by Kumar Mangalam Birla.

During the last decade Aditya Birla Group did not make many headlines in  pink news papers. At that time Kumar Mangalam was working silently to consolidate  and watching the news making entrepreneurs.  Now, he is willing to buy the good work done by these entrepreneurs like Kishor Biyani. His flagship company Aditya Birla Nuvo is placed second after Tata Motors in Nielsen’s corporate image monitor survey of 2012.
On the last day of April Kishor Biyani informed the media that his most respected flagship firm, Pantaloon Retail India Ltd (PRIL), which operates the 'Pantaloon' chain of fashion apparel and accessories stores is being taken over by Aditya Birla Nuvo Ltd by infusing ₹ 1,600 crore. (App $ 308 millions). As a part of the deal between the two companies, the Pantaloon format will be demerged from PRIL, a listed entity on the BSE and National Stock Exchange.

This move give Kumar Mangalam two fold advantage: one, access to Pantaloon loyal customers  and second, removal of major threat to his existing brands which he acquired 13 years ago and have nurtured  well.  He had purchased  Madura Garments’ men’s apparel brands, Louis Philippe, Van Heusen and Allen Solly. These brands have survived the rough weather and have created a niche for themselves. But further boost  is required to grow revenues. His portfolio lacked exciting brand for women and kids. Pantaloon deal can fill that gap.
This is a journey of integration from age old business of yarn and fabric which the group had  and sold under Grasim and Graviera suiting brands to men’s niche segment and now further expansion to new vast segment. The Madura brands are valued higher than Pantaloon – a middle class label so far. Madura brands have created the niche brand image, but the cash flow has not been very exciting.
The purchase power of middle class can be encashed through new acquisition. This point well get validated  when on May 15 AB Nuvo will announce its numbers. In last 13 years the apparel business of AB Nuvo  has grown four times to ₹ 2,200 Crore (app $430 million), but is still too less looking to the size of market and the name associated with the brands.

The Indian apparel retail industry is expected to grow at a CAGR of 7% during 2011-14. During 2011 the growth rate was over 8% and total market size was valued at ₹           1,62,000 Crore (App $33.1 billion).  And is likely to cross ₹ 2,00,000 crore (App $33.1 billion) by 2015. To get a larger share of this market  existing brands were insufficient. Louis Philippe is positioned as corporate wear, Van Heusen as a premium brand and  V., a party wear.
Pantaloons comes with its wide range of affordable clothing for of mass and mid-mass brand segment.  Allen Solly, women’s wear brands of AB Nuvo will  get support from the ethnic wear range of  Pantaloons. Women’s wear and kids wear give margins as high as 30-40%. No brand can afford to miss out that.

Though it  sounds simple on paper, but implementing the new merged structure would be difficult to handle.  Many brands from different segments premium and mass brands under one roof pose problems of pricing, positioning and branding.  This would be mandatory that the different teams handle two segments separately.
Madura Garments’ experience will help Kumar Mangalam to make a strategy of injecting Birla values gradually after consolidation so that the resistance to change is minimum and synergy advantage is not lost.

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