Arvind Ltd has exited its five-year-old joint venture with world’s largest apparel company VF Corp by selling its 40 per cent stake in VF Arvind Brands Pvt Ltd to the foreign partner for Rs 257 crore ($52 million). The venture is engaged in marketing products under the brands Lee and Wrangler.
The deal is part of the agreement where the foreign partner was to buy out Arvind Ltd at the end of five years. Arvind Ltd had formed the JV with NYSE-listed VF Corp in September 2006 and invested Rs 5.47 crore in the capital of the venture and was a minority partner in the 60:40 JV. Assuming no fresh money was invested by the local promoters, Arvind saw its investment value grow almost 50x in five years.
Before forming the JV, one of the arms of Arvind Mills (now Arvind Ltd), was engaged in marketing brands that were part of VF Corp portfolio through a licensing deal.
VF Corp had paid $33 million in late 2006 to pick 60 per cent in a fresh JV under which the existing operations was transferred. This implies, the venture was valued at around $55 million (or Rs 255 crore given different exchange rate) back then.
Jayesh Shah, director & CFO of Arvind Ltd, said, “In the last financial year, our share of the JV revenue was approximately Rs 120 crore which was less than 3 per cent of our consolidated revenue. Arvind plans to utilise the cash flow received from the sale of the JV in reducing its debt.”
This implies that VF Arvind Brands has clocked revenue of around Rs 300 crore in the last financial year. As per VCCedge, financial research platform of VCCircle, the venture was in losses till the year ended March 2010 even as it sharply pruned net losses during FY2010.
Going by the deal value, the venture is valued at Rs 642.5 crore or $130 million. This pegs a valuation of 2.14x last year’s revenues for the branded apparel business.
Although there can be no straight comparisons, going by the listed apparel firms like Raymond and Arvind Ltd (which has a diversified presence in the textile business), the deal looks like a juicy one, purely based on revenue-valuation multiples. Since detailed financials are not available, we cannot make an EBITDA level comparison for the deal.
Arvind Ltd scrip was down 0.47 per cent and trading at Rs 106.7 a share on the BSE in a flat Mumbai market on Wednesday.
For VF Corp, this is yet another push in emerging markets. The company’s annual report states that its goal is to generate 40 per cent of revenues from international markets by 2015, with growth concentrated in Europe, China, India, Brazil and Mexico. VF has a portfolio of around 30 brands such as Lee, Wrangler, Nautica and Kipling.
This deal comes close on the heels of another NYSE-listed firm that takes even more interest in its India-related business. PVH Corp, which acquired the Tommy Hilfiger Group from private equity giant Apax Partners last year, struck a deal two months ago to buy out the licence for trademarks of the Tommy Hilfiger brand that was with the Murjani Group in India, as well as the 50 per cent stake owned by the Murjanis in Arvind Murjani Brands (AMB), a local joint venture with the Arvind Group.
AMB is the apparel sub-licensee of Tommy Hilfiger brand in India as it was launched in the country. The 50:50 JV will continue between Arvind Ltd and PVH Corp, and will manage other sub-licensees of the brand in India. The deal also marked the direct presence of the Tommy Hilfiger Group in India, a strategy it has been following in other international markets for consolidating brand management.