India’s Flipkart will acquire 7.8% stake in Aditya Birla Fashion

Walmart’s subsidiary in India, Flipkart will buy a 7.8 percent stake in Aditya Birla Fashion and Retail Ltd for $204 million giving the eCommerce business a greater foothold in the high-margin fashion market as it clashes with US-based rival Amazon in the country.

The investment comes at a time when Amazon, billionaire Mukesh Ambani-led Reliance Industries and Flipkart are in a race to capture market share for everything from food and groceries to electronics and clothes in India’s fast-growing online market.

More Indians are shopping online, especially ahead of the main festive season as the COVID-19 pandemic is keeping most people indoors.

“Fashion retail in India is set for robust long-term growth due to strong fundamentals of a large and growing middle class. Rapid growth of technology infrastructure will further accelerate this process,” Aditya Birla Group Chairman Kumar Mangalam Birla said, adding that the country’s apparel industry was set to be worth $100 billion in the next five years.

Aditya Birla owns the rights to sell numerous labels like Forever 21, American Eagle Outfitters and Ralph Lauren in the country.

The fashion unit of Aditya Birla said that it will use this capital raised to strengthen its balance sheet and accelerate its growth trajectory. The company aims to aggressively scale up its existing businesses, where it holds strong market leadership positions, while growing its presence in emerging high-growth segments such as innerwear, athleisure, casualwear and ethnic wear, establishing them as the company’s new growth engines, it said. The deal would also assist Aditya Birla to slash debt, analysts said.

Shares in the fashion unit of Aditya Birla Group rose as much as 6.5 percent following the news, touching their highest since 30 March.

Meanwhile, Flipkart said that its technology prowess will enhance Aditya Birla Fashion’s omni-channel capabilities, enriching customer experiences while continuing to provide access to premium loyalty programs and affordability constructs for which Flipkart is known.

The deal is a way for Flipkart, which already owns the popular Myntra fashion website, to add more merchandise from foreign brands to its lineup.

Earlier media reports had suggested that both Amazon and Flipkart were in the race to acquire a stake in Aditya Birla Fashion and Retail.

This will be the second major deal so far in the country’s offline market space in 2020. The Reliance Retail Ventures unit of Reliance Industries had acquired the retail and wholesale business and the logistics and warehousing business from the Kishor Biyani-promoted Future Group earlier in August. The deal is currently under hold after Amazon served a legal notice to Future Group for infringing the terms of their agreement.