Singapore based GIC SI buys up to 25% equity stake in Reid & Taylor India Ltd for Rs 9000 million

S.Kumars Nationwide Ltd (SKNL), pioneers in manufacturing and distributing branded textile and ready-to-wear clothing, announced that its wholly owned unlisted subsidiary Reid and Taylor (India) Ltd (RTIL) has come to an agreement with Singapore based Indivest Pte Ltd. (Indivest) an affiliate of Government of Singapore Investment Corporation Special Investments (GIC SI) whereby GIC SI will invest Rs 9,000 million through a fresh issue of equity shares and warrants. Subsequently GIC SI will in effect own up to 25.4% stake in RTIL and the balance 74.6% stake will remain in the hands of SKNL.

RTIL is valued at Rs 35,400 million at transaction price and SKNL will now hold equity worth around Rs 26,400 million at Transaction value. This association with GIC SI provides strong support to SKNL's vision to emerge as a market leader in premium and luxury fabrics and apparel. The Investment establishes a high degree of confidence amongst global institutional investors towards RTIL's business model and the ability of its management to create sustained value for all its stakeholders.

Rs 9,000 million cash infusion to strengthen operations and balance sheet:

In the recently completed transaction, Indivest, an affiliate of GIC SI invested Rs 9,000 million through a fresh issue of shares and warrants enabling it to acquire a 25.4% stake in the Company with SKNL owning the balance 74.6% stake. RTIL was valued at Rs 35,400 million for the transaction. Out of Rs 9,000 million, Rs 7,900 million will be received as equity at commencement of transaction itself. As a result of which GIC SI will acquire 23% stake in RTIL. The RTIL equity shares are to be issued at Rs 695.18 per share to GIC SI. The remaining Rs 1,100 million will be in the form of warrants, which shall be converted into equity at the same price within 36 months, or at the time of IPO, whichever is earlier. Post conversion, GIC SI's slake will increase to 25.4% with the balance 74.6% in the hands of SKNL.

Funds from the transaction will be utilised to assist the growth plans of both RTIL and SKNL. in areas such as capacity enhancement and debt repayment The expansion plans that cover investments of Rs 1,000 million will include setting up a facility for manufacturing tailor made suites (Reid & Taylor) and launching premium business lines. The balance funds shall be deployed towards complete repayment of the debt portfolio of both RTIL and SKNL Rs 4,400 million of the proceeds will be loaned to SKNL for repayment of its debt enabling it move out of CDR (Corporate Debt Restructuring) obligations from its existing lenders.

RTIL will also retire Rs 2,500 million of CDR and other debt on its balance sheet. This will significantly increase the financial and business flexibility of both RTIL and SKNL which will be conducive to overall growth. Rs 1,100 million that will accrue in the future from the conversion of warrants into equity will be utilized at a later date for upgrading RTIL's existing integrated worsted fabrics manufacturing facility located in Mysore, Karnataka. This mill already has a capacity of 840,000 metres per annum which is expected to be enhanced to 1,340,000 metres per annum going forward. The Mysore facility already supplies fabric to Reid & Taylor (Scotland) and once the facility is upgraded it will be in a position to comfortably cater to both Reid & Taylor (Scotland) and the rising demand in the domestic market.

Commenting on the transaction Mr. Nitin S Kasliwal, Managing Director and Vice Chairman of SKNL said, "This transaction provides us with significant opportunity not only to expand the RTIL business but also offers us a chance to execute several plans that we have in mind. The investment symbolizes a high level of confidence amongst global investors in our ability to execute and create distinct businesses that have the potential to deliver sustained value. We plan to utilize the proceeds of the transaction for enhancing manufacturing capacity, introducing new operating lines including adding brands that have the potential to further enrich our business portfolio, and towards restructuring of our loan portfolio that will strengthen the quality of our balance sheet. We are absolutely delighted to be associated with Indivest and GIC SI as they are a highly respected global investor who takes exposure only after conducting meticulous research on any investee company. I am confident that their trust in us will be rewarded by RTIL delivering consistently superior Performance going forward."

RTIL to gain strong operating focus as a distinct entity:

SKNL has a diverse business portfolio encompassing nearly every segment of the textile sector in India. Very few companies in the industry have such wide-spread participation. Owing to the magnitude of its involvement in every segment in the textile space, SKNL was not gaining optimal credit and value benefits for its efforts in the top half of the value chain vis-a-vis RTIL. Further, Reid & Taylor had reached its critical size as a division of a company and more focus was required for the brand to grow in line with the management's vision.

Keeping this in mind, RTIL was incorporated as a fully owned subsidiary with effect from January 01, 2008 enabling it to perform to its maximum potential and get valued accordingly.

Business outlook is strong:

Brandhouse Retail Ltd (BHRL) is a fully owned subsidiary of SKNL and is the company that holds sole rights for distributing RTIL offerings through the exclusive brand outlet (EBO) route. BHRL will provide impetus to RTIL's performance going forward as it plans to increase the number of RTIL EBOs to 160 from 100 by the end of the current financial year. This number is set to be enhanced further, to around 400 stores by the end of FY2010. RTIL also expects to increase its distribution through multi brand outlets (MBO) from 11,000 currently to around. 20,000 by the end of FY2010. A large chunk of this expansion will take place in tier one and tier two cities enabling the Company to penetrate these high growth regions that are today characterized by brand conscious individuals with rising disposable incomes.

In FY2008, Reid and Taylor delivered revenues of Rs 4,872 million that are expected to double over the next three years complemented with a noticeably strong earnings performance. Within 10 years of its inception, the Company is already positioned amongst the top two luxury clothiers in India indicating that it is backed by a comprehensive business model and a highly capable management team. With fresh funds in place and a lighter balance sheet the company is expected to grow strongly going forward. Furthermore, RTIL enjoys an 18% market share in the premium clothing segment and this grasp of the market seems well positioned for expansion given the aggressive stance of the Company and the favourable market scenario.

Source : Equity Bulls

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