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What Flipkart's investment into Aditya Birla Retail means for both companies

While the stake sale could help Aditya Birla Fashion deleverage their balance sheet in the short term and a stronger omni-channel play in the long term, for Flipkart it is likely to help in stronger private label presence across premium stores

Rukmini Rao | October 26, 2020 | Updated 12:59 IST
What Flipkart’s investment into Aditya Birla Retail means for both companies
What the Flipkart-ABF deal entails

The recent stake sale of 7.8 per cent by Aditya Birla Fashion and Retail Limited ( ABFRL) to e-commerce giant Flipkart Investments to raise Rs 1,500 crore got a thumbs-up from the market. After the announcement on Friday, the company's stock rose over 7 per cent.

Subject to approvals among other things, the deal provides Flipkart certain rights such as pre-emption rights and right of first refusal for a period of 1-5 years from the date of allotment of equity shares, or if the equity shareholding of the investor falls below a certain threshold, along with a board seat. Being a non-exclusive deal, Aditya Birla Fashion could continue to have its own online presence as well as work with other platforms.

Analyst reports point out that while the deal will, in the immediate time, aid in deleveraging the balance sheet of the company, in the long run, it would help ABFRL in finding a strong omni-channel presence.

ICICI securities in its research note said that ABFRL's deal with Flipkart would also enable it to have preferential access to online platforms and provide required thrust to its omni-channel growth ambitions, creating a strong combination of leading offline retailer of marquee brands and leading fashion e-tailer. "Among the portfolio of brands, lifestyle brands had witnessed strong traction in e-commerce with revenues during pre-COVID times growing at 45%+ with share of 7% to overall sales," the note said.

A note by Motilal Oswal stated that though clarity on exclusive listings and product categories on Flipkart and technology enablement/ collaboration have not been laid out completely, Flipkart Group would now look at strengthening the range of ABFRL's product offerings on its e-commerce platforms, Flipkart and Myntra. "ABFRL plans to aggressively scale up existing businesses and grow its presence in emerging high-growth categories, such as innerwear, athleisure, casualwear, and ethnic wear, as these segments would be the new growth engines for ABFRL," said the research note.

Earlier in July this year, Flipkart had also announced Rs 260 crore investment into Arvind Fashion's subsidiary brand Arvind Youth which owns the brand 'Flying Machine'. Edelweiss research report noted that this deal could also boost Flipkart's strategy to build a fashion portfolio to shore up its consumer and business-to-business e-commerce presence, while offering Flipkart access to ABFRL's wide store network, especially Pantaloons, to drive its private label sales. The report further noted, "Going ahead, we believe majority of the well-established brands will align with one of the major online platforms (Flipkart, Amazon, JioMart). Also, such a tie-up could extend to other industries to build an integrated platform, potentially similar to what Reliance is doing via JioMart".

Also read: Flipkart to buy 7.8% stake in Aditya Birla Fashion

Also read: US tech giants vs US etailers: Mukesh Ambani's Reliance Retail strategy alarms Flipkart, Amazon

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