Flipkart to acquire 7.8% stake in Aditya Birla Fashion Retail Limited (ABFRL)

The board of ABFRL has approved Flipkart Investments Private Limited’s proposal for issuance of equity shares on a preferential basis. ABFRL would raise 1500 crore for 7.8% stake at the issue price of 205 INR (33.63% higher than Thursday's closing price of INR 153.40).

The company along with furtherance of the existing B2B arrangements has entered into a commercial agreement regarding the sale and distribution of various domestic and international brands. In addition to that, they will also be entitled to some rights such as pre-emption rights and right of first refusal for a stipulated period of between 1-5 years from the date equity shares were allotted.

Background of ABFRL

Aditya Birla Fashion and Retail Limited (ABFRL) previously known as Pantaloons Fashion & Retail Limited, is a gigantic and distinguished clothing retail chain. It is home to some of the most exemplary Indian and international brands like - Louis Philippe, Van Heusen, Allen Solly, and Peter England - all being market leaders within their respective segments.

Lifestyle industry has a huge intrinsic potential to grow in the near future in India. People are shifting steadily towards the online mode to fulfill all their requirements. At such a crucial time this deal is of immense significance.

This acquisition would be the second big deal in the retail space in 2020 after RIL acquired a majority stake in Biyani led Future Group for a lumpsum amount of 24,713 crores.

Implications and significance of the deal

This deal has immense strategic importance especially at the time when giant competitors like RIL have emerged in the market along with incumbents like Amazon. While there has been cut-throat competition between e-commerce giants Amazon and Flipkart in the FMCG and electronics segment, Myntra and AJIO have been the biggest rivals in the field of fashion and lifestyle. This acquisition will provide a boost to Flipkart’s lifestyle segment. With shared benefits of distribution and logistics, it would help both ABFRL and Flipkart to attain the heights of success helping Flipkart to become India’s true fashion capital.

Future predictions of the retail market

Indian Retail market is expected to grow at a CAGR of 9% to reach Rs 1,08,58,000 crore INR (USD1,672 billion) by 2027. At present, the e-commerce market is dominated by the electronics category ( share of 49%) followed by apparel and lifestyle (25%). The adoption of e-tail in the apparel and fashion industry was primely resisted by the consumers’ willingness to touch-and-feel the product while making purchase decisions. But, to address this issue, incentives like cash on delivery, easy return and exchange, discounts, and offers have been implemented to encourage consumers to use online channels for shopping.

Due to amplified media exposure alluring deals and massive promotion, India is witnessing a surge in the demand for fashion and lifestyle apparel. Even consumers residing in Tier -II and -III cities and semi-urban areas are opting for online channels due to the availability of exclusive products and global brands.

Though it will be interesting to see whether partnering with ABFRL will help Flipkart in capturing a greater market share in the fashion and lifestyle segment or not, it will be more intriguing to see the response of competitors in the near future.

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