Flipkart in talks with Biyani for Future Lifestyle stake: report

18 Oct 2017

Flipkart has begun exploratory discussions with Future Group chief Kishore Biyani to pick up an 8-10 per cent stake in Future Lifestyle Fashions Ltd (FLF), the listed fashion arm of the group, according to The Economic Times.

The top management of both sides met last week in Mumbai to discuss the matter, according to ET citing people aware of the development. Follow-up meetings are due after Diwali, they said.

Shares of Future Lifestyle Fashions surged over 5 per cent in Wednesday's trade after the report.

Flipkart-owned Myntra, the fashion-focused e-retailer, is the likely vehicle for the partnership. After Flipkart acquired the portal in 2014 for $350 million, it has become a pivotal differentiator against Amazon India.

Online and brick-and-mortar retailers are entering each other's space globally as well as in India in a multi-channel strategy to combat shrinking retail margins. Amazon picked up a 5 per cent stake in Shoppers Stop last month - its first investment in an offline retailer in India - to expand its base into smaller towns.

Future Lifestyle is one of the largest branded apparel retailers in India with total retail space of 5.4 million sq ft across 400 stores in 90 cities and a portfolio of 30 brands straddling different segments and price points.

It has large department store formats like Central and Brand Factory as well as specialist niche formats such as Planet Sports.

Future Lifestyle owns and markets 41 domestic and global fashion brands, including Lee Cooper, Scullers, Indigo Nation, John Miller and Jealous 21.

Myntra, which acquired Jabong last year, said in August it had reached $1.5 billion in gross merchandise value (GMV) and plans to raise this to $1.7 billion by the end of the year. Its private label business, Myntra Fashion Brands, has also turned profitable. This comprises 13 private brands such as Roadster and Hrithik Roshan's HRX.

The promoters own 60.6 per cent of FLF, of which around 49 per cent is pledged as debt collateral. The remaining 39.4 per cent is with the public and other institutional shareholders. This includes an 11.43 per cent stake held by Wipro chairman Azim Premji's investment arm Premji-Invest.

At current market capitalisation of Rs6,536.81 crore ($1 billion), a 10 per cent stake would translate into an investment of Rs650 crore ($100 million). But Biyani is expected to ask for a significant premium to the current market price.

The ET report said the discussions are preliminary in nature and there is no guarantee a transaction will take place.

Ecommerce penetration in India is at 2 per cent of all retail sales, according to Morgan Stanley.

Other than growth capital, Biyani can also seek preferred access for Future's fashion brands through the Flipkart network. Biyani had teamed up with Amazon in October 2014 to sell Future Group's portfolio of brands on Amazon's marketplace in India, but that alliance did not make much headway.

At a strategic level, Flipkart, which has over $4 billion in cash after raising capital from Japan's SoftBank Corp and China's Tencent, has started expanding its ecosystem.

A key part of this strategy includes building up payments business PhonePe, to which it has allocated $500 million, besides entering grocery and business-to-business (B2B) ecommerce.