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Indian Rayon buys Madura Garments for Rs 1.89 billion, to go global with premium brands of garments

The board of Indian Rayon Industries has approved the acquisition of Madura Garments, the readymade garments division of Madura Coats Limited, a subsidiary of Coats Viyella PLC, UK.

The transaction involves the buy-out of Madura Garments by Indian Rayon as a going concern from Madura Coats and acquisition of brand rights for international brands of Coats Viyella by Indian Rayon's subsidiary abroad for a total consideration of over Rs 2.36 billion. The transfer for which the necessary agreements have been signed will be effective from January 1, 2000.

Aditya Vikram Global Trading House Limited, a wholly owned overseas subsidiary of Indian Rayon, is purchasing from Coats Viyella PLC the technology and exclusive brand rights for various countries in SAARC and Middle East region for a consideration of $ 10.8 million (Rs 470 million).

On the Aditya Birla group's major foray into this sector, Kumar Mangalam Birla, the group's chairman, said, "We believe the acquisition of Madura Garments will greatly enhance value for Indian Rayon shareholders. Consequent to the review of our portfolio of businesses, the apparels business had been identified as a business that we wanted to have a leadership position in, through a focussed entry into the high-value ready-to-wear segment.

"The acquisition of Madura Garments and certain overseas brand rights is a step forward in this direction, which has overnight catapulted the group to the top-of-the league in the branded apparels sector."

Indian Rayon will acquire the Madura Garments division from Madura Coats as an ongoing business together with all the employees, brand licences, distribution and manufacturing networks for a consideration of Rs 1.89 billion and will become the owner/ licencee for India for premium brands such as Louis Phillippe, Van Heusen, Allen Solly, Byford, Peter England and Sanfrisco, Indian Rayon stated in a media statement.

The deal for brands of Coats Viyella will help Indian Rayon export branded garments in these territories by leveraging India's well established skill base in the textile industry, using state-of-the-art technology obtained from world's leading garment manufacturers as well as the exclusive right to use globally renowned brand names in the region. Importantly, this will enable Madura Garments access export markets and widen its growth plans.

Elucidating on this major portfolio move, Birla added that ''Madura Coats and we have a common shared vision of creating value for all of our stake-holders. The garments division has had an exemplary performance record and we are committed to grow it further. It is a virtual entity, leveraged on intellectual capital, operating on a lean working capital and has evolved an excellent business model of manufacturing through strategic partnerships. This is in sync with our new philosophy of increasing our focus on value-adding sectors which are knowledge-intensive."

Commending the Madura Garments team and its excellent brand management skills, Birla averred: ''The strength of the brands, the richness of people talent in the business, and its intellectual capital base, are what I consider will be our greatest assets in this business going forward.''

Birla stated that the Madura Garments business would continue to run as before with retention of all the employees who have built this business. In effect, he said, ''There will be no change in its operations on account of change in ownership, and we will only further facilitate the growth of this business by adding value through critical inputs of capital, and leadership.''

Meanwhile, Birla has named Vikram Rao, group executive president, fabrics and apparel business, to manage the operations of Madura Garments. Rao incidentally has rich experience in the Indian garments industry.

Rao was at one time the president of Madura Coats' apparel fabrics division. ''Within the context of the shared vision and goals for the apparels business, the division will continue to operate under the name of Madura Garments and will enjoy a high degree of operational autonomy just as they do now. Alongside, as a division of Indian Rayon, they will enjoy full access to the group's enormous resources.''

Madura Garments had an annual sales of about Rs 2.50 billion in 1999 and has historically enjoyed a robust sales growth of over 40 per cent for the last five years. It has also been achieving exports of about Rs 250 million per year. Madura Garments has a strong national distribution coverage through about 100 exclusive showrooms and over 3,000 retail outlets.

In India, the readymade garments industry has been growing at 20-25 per cent, in spite of low penetration (20 per cent for shirts and less than 5 per cent for trousers).

Rising personal incomes and changing lifestyles are expected to significantly improve the current low penetration and the industry is expected to breach historical growth levels.

Indian Rayon plans to finance this acquisition primarily through its current cash surplus and internal accruals. Adesh Gupta, chief financial officer, Indian Rayon, said, ''In view of the growth opportunities and current low interest rate scenario, we may consider raising market borrowings to augment internal resources.''

Incidentally, this is the fifth acquisition of the Aditya Birla group in the last two years. The first two acquisitions were in the cement industry, and one in the pulp industry.

The takeovers of Madura Garments and Learning Bytes International are milestones in the group's efforts to build a value chain of readymade service and solution providers. The group is also looking at intellectual properties and leadership in the Indian mutual fund industry.

UNI

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