MUMBAI | NEW DELHI: Blackstone, the world’s largest private equity firm, has stitched up a $250 million investment in Kishore Biyani’s Future Lifestyle FashionsNSE 1.18 % (FLFL), owner of retail chains Central & Brand Factory as well as several clothing brands, said people aware of the transaction.
The primary infusion of capital will be through a combination of equity and structured debt that will fund the capital expansion of Biyani’s deep-discount retail format Brand Factory, which is modelled on US retailer TJ Maxx, besides improving his promoter-level leverage. The company’s board is meeting on Friday to finalise terms, following which an announcement is expected.
The structured credit line will be for five years with a fixed coupon while the equity upside is expected to accrue through Blackstone’s stake in FLFL’s operating company. Blackstone will pick up a 6-7% holding, joining investors such as L Catterton and PremjiInvest, which together own around 17%. Other key equity investors include L&T Mutual Fund (4%) and LIC (6.5%).
Biyani and family own 53.43% of the listed FLFL through entities such as Ryka Commercial Ventures, Central Departmental Stores and Future Enterprises among others.
About 26.4% of the promoter holding has been pledged to financial institutions. Biyani had begun consolidating the family ownership into a few holding companies in 2010 to avoid crossholdings among group companies and help streamline the operating firms for the next generation, apart from raising fresh capital from large private equity funds.
The current market capitalisation of the company is Rs 9,008.92 crore.
Existing investor Aion is getting a partial payout and is likely to roll over $50 million of its $110 million exposure. In 2017, Aion, a joint venture between ICICI Bank and Apollo Global Management, had backed Biyani’s family office and promoter firms with funding for the holding companies.
Future Group CEO Biyani was unavailable for comment. Spokespersons of Blackstone and Aion declined to comment.
This association with Blackstone will likely be the basis of a closer relationship that may span Biyani’s retail and real estate empire, experts said. Blackstone also runs one of the largest real-estate focussed funds in the world and is the largest owner of office space in the country.
FLFL is Future Group’s flagship fashion business. It operates more than 300 stores in more than 90 cities, occupying 5.7 million sq ft of retail space. It owns and markets leading brands, through Central and Brand Factory, exclusive brand outlets (EBOs) and other multi-brand outlets (MBOs). The company was created after the demerger of the lifestyle fashion businesses of Future Retail and Future Ventures.
FLFL also markets domestic and foreign brands including Scullers, BARE, Lee Cooper, Indigo Nation, Clarks, Giovani and Mineral.
In FY19, the company’s net profit rose 50% to Rs 189 crore while revenue rose 27% to Rs 5,728 crore. Brand Factory, which sells off-season branded garments at discounted prices, had same-store sales growth of 14% in the last financial year.
The company acquired a 33% stake in Koovs.com last year and has since used it to develop an ecommerce platform for Brand Factory. In early July, the company softlaunched BrandFactoryOnline-.com for employees and select loyalty programme customers. The company’s other ecommerce platforms are aLLOnlineStore.in, Clarks.in and CoverStory.co.in “FLFL is targeting to more than double Brand Factory stores over the next five years with (more than) 30 store additions per annum, while expansion of Central stores will be in a calibrated manner with 4-5 stores annually,” said Krupar Maniar of ICICI Securities. “We believe capex intensity is likely to remain high in the near term given expectations of acceleration in BF (Brand Factory) store additions, which may impact return ratios.”
There are 97 Brand Factory stores and 47 Central stores across the country.
Analysts estimate Central and Brand Factory reported samestore sales growth of 5.7% and 8.7%, respectively, in FY19. This combined with aggressive expansion at Brand Factory drove the 27% revenue growth in FY19. Ebitda margins remained flat in FY19 despite a 6.3% increase in the Brand Factory share in the overall revenue mix. Improving Brand Factory store maturity will drive overall margins going ahead. FLFL continues to rationalise its brands store network and closed a net 27 outlets in the year, taking the count to 202.
“We see strong growth visibility for FLFL with Brand Factory’s monopolistic position, steady samestore sales growth reported by Central and incremental focus on ‘power’ brands,” said Chirag Shah, analyst at CLSA. “We also see value unlocking potential from the ‘investee’ brands with past investments generating strong returns.”
This will be the second such special situations transaction by the New York-based private equity group in India. It had earlier acquired Mumbai-based distressed asset buyer International Asset Reconstruction Co (IARC), which also includes Tata Group, HDFC Bank and ICICI Bank as key shareholders. Blackstone has also agreed to back Manipal’s Ranjan Pai with a Rs 3,200 crore ($450 million) financing line to help acquire Naresh Trehan’s Medanta Hospital for Rs 6,000 by capitalising the Pai family’s privately held, wholly owned umbrella entity Manipal Education & Medical Group (MEMG). Pai owns 60% of Manipal Hospitals through the promoter holding company, with TPG and Temasek owning the rest.
“Biyani had taken loans from several NBFCs. In one shot he’s cleaning them out and also capitalising Brand Factory’s expansion,” said an executive. “This is the best time to clean up your balance sheet and capitalise oneself.”
Blackstone, though not as large as peer Bain Capital when it comes to retail investments, has taken marquee bets worldwide. Its most high-profile and visible trade has been to back fashion label Versace. Similarly, it had also backed Michaels in the US along with Bain Capital and Jack Wolfskin, a German outdoor brand.