Garment Cos Hunting in European Markets
Indian garment companies that used to shy away from European markets because of high valuation and now invading those markets as the values have dropped substantially. This can be seen in the fact that Naru Exports India could get the Italian Ciao Ciao World chain for a fifth of the price that was quoted earlier.
“This is the right time to buy if you want to take the big leap forward,” says Devendra Bajaj owner of Naru Exports India and now the new owner of Ciao Ciao World, which has 100 stores and owns three brands.
The recession and the slow recovery have put an enormous strain on European businesses, forcing some mid-sized players to give way by cashing out. After the buying spree by textile biggies such as Welspun and Alok Industries in Europe, today’s cheaper valuation has made it possible for small and medium sized companies like Naru and Tirupur’s Prem Durai Exports to also shop around on European streets.
“Textile business is slowly and steadily coming out of Europe. And brands (still surviving there) are looking to encash their holdings,” says Sunil O Khandelwal, CFO, Alok Industries, which made two acquisitions in Europe.
A direct retail presence would help these homegrown firms to substantially improve profit margins and grow their business multifold. Naru, for instance, expects profit margins to improve by nearly three-fold. “The market is quite weak in Europe. The profit margins of stores are coming down. With buyouts we would be able to overcome pricing pressures,” says Bajaj. Besides better profitability, Prem Durai believes that revenues would grow by more than 25%. Switcher has more than 360 retail stores and gets bulk of the business from corporates.
“Smaller firms making overseas buyouts should look at hidden liabilities and align the acquired businesses properly with their existing ones,” say observers. “Though several small firms are coming up for sale, their financial condition may not be strong enough to make deals work,” they caution. “While unprofitable businesses take at least 2-3 years to turn around, even profitable firms would take up to a year to start showing better results,” Khandelwal says.