Aditya Birla Group’s couture play

Billionaire Kumar Mangalam Birla-led fashion retailer Aditya Birla Fashion and Retail Limited (ABFRL) has announced its second deal with an Indian designer brand in less than a month. The Mumbai-based retailer on Wednesday said that it has acquired a 33.5% stake in fashion designer Tarun Tahiliani’s Goodview Properties Private Ltd (GPPL)— that will own and operate the designer’s eponymous couture label—for ₹67 crore.

The deal comes close on the heels of ABFRL acquiring a 51% stake in Kolkata-based fashion designer Sabyasachi Mukherjee’s company, Sabyasachi Couture, for ₹398 crore late last month. Sabyasachi Couture sells garments, accessories, and fine jewellery under the Kolkata-based designer's eponymous label.

ABFRL, which owns fashion brands such as Peter England, Louis Philippe, and Van Heusen, said that it has also acquired a 80% stake in a new unnamed entity, as part of the deal with Tahiliani (who will own the rest of the entity). In the new business, ABFRL will collaborate with Tahiliani to develop and launch a new brand of apparel and accessories in the affordable premium ethnic wear segment, the fashion retailer noted in a release. It will soon launch a men’s ethnic wear brand, it added. The new brand will aim to build a ₹500-crore business in the next five years with more than 250 stores across the country. It is looking to launch the first tranche of stores by September.

Commenting on the valuation of the deal Abneesh Roy, executive vice president, Edelweiss Securities, pointed out that considering ABFRL had paid ₹67 crore for a 33.5% stake, it values the existing business of Tahiliani at ₹200 crore. “The deal multiple comes to 3.3x FY20 sales, similar to the multiple paid for Sabyasachi [Mukherjee].”

In FY20, Sabyasachi Couture had posted a revenue of ₹274 crore.

“We believe that over the next few years, ethnic wear is going to be an important category as confident Indians rediscover their culture and heritage. Tarun Tahiliani has been at the forefront of the emergence of the Indian design industry. We are proud to partner with him to launch a new brand that gives the emerging Indian consumer a new range of celebration wear reflecting the unmatched, exquisite design excellence at more accessible prices,” Ashish Dikshit, managing director, ABFRL, said in a statement.

As part of the deal, ABFRL will have the option to increase its stake to 51% in Tahiliani's couture business in the next few years.

Besides the two deals this year, ABFRL has made two key acquisitions in the Indian ethnic wear and lifestyle space in the past. In 2019, it picked up a 51% stake in fashion designers Shantanu & Nikhil’s Finesse International Design, which makes bespoke apparel, footwear, and accessories for men and women, reportedly for ₹60 crore. The same year, it also acquired ethnic wear and lifestyle retailer Jaypore for ₹110 crore.

“From the recent acquisitions it is clear, ABFRL is betting big on ethnic [wear] as it has nearly five brands in the portfolio now: Sabyasachi, Shantanu & Nikhil, Jaypore, the new brand with Tahiliani, and Pantaloons (economy range),” Roy said, adding that ABFRL will have to strategise on driving scale and synergies with its existing businesses, besides managing the cultural aspects of these [acquired] companies.

“With [ABFRL’s] new venture [in men’s ethnic wear with Tahiliani], the key thing to understand is how the company will differentiate it from Shantanu & Nikhil’s positioning and focus, which is also menswear-driven,” Roy said.

As part of the deal, Tahiliani Design Private Limited (TDPL), which currently runs the garments and accessories business under the Tarun Tahiliani brand, will be transferred to GPPL. TDPL, which was incorporated in 2002, posted a revenue of ₹69 crore in FY18, followed by ₹72 crore in FY19 and ₹67 crore in FY20.

“Last year, we celebrated 25 years of the Tarun Tahiliani label. The next big leap for the brand was to take our craftsmanship and expertise and offer it to a larger Indian market that knows and values quality and is actively seeking it. I was clear that we needed a partner who could not just help us with this scale, but also have the same dedication to quality and the customer,” Tahiliani, founder and CEO, Tarun Tahiliani Brand, said in a release.

Industry experts point out that corporate partnerships and acquisitions allow a designer-entrepreneur and his/her investor partners to unlock some of the value that is being built.

“There may be benefits from operational and systems disciplines, sourcing strengths, the financial muscle of a larger partner, but the brand and its intrinsic identity must not be diluted. If the brand has to maintain its cachet, its distinctiveness, it would need to be allowed to run with significant independence on the product and the customer experience side,” Devangshu Dutta, chief executive of retail consultancy Third Eyesight had told Fortune India when ABFRL announced its deal with designer Mukherjee in late January.

Shares of ABFRL closed at ₹179.25, up 6.54%, on the BSE on Wednesday, while the Sensex was up 2%.