Mr.Kumar is right

So what in heavens is an Amitabh Bachchan photograph (endorsing the international brand Reid & Taylor) doing in an S.Kumars story. Well, it is exactly this dynamic perspective that has made S.Kumars a top notch international player. Reid & Taylor is a 100% owned brand of S.Kumars, & so are Belmonte, Carmichael House et al. S.Kumars’ recall strategy has enabled it to gain tremendous market shares in premium segments domestically and abroad. Currently, S.Kumars is proposing a demerger of its retail arm – Brandhouse Retail Ltd. (BRL). However, the company focuses on a very niche segment; and such a move (slated for May 2, 2008) might expose the demerged entity to huge risks (that a joint entity might have mitigated). So, is the move sensible?

Way back in 2006, the company had claimed that they will be ritzy haute couture players. Indeed, during the past two years, they have rolled out 24 premium home lining stores (Carmichael House), 40 exclusive brand outlets of its own brands (like Reid & Taylor) and bagged exclusive rights for elite brands like Escada. Is it paying off? Company sources shared that such a focus contributed 30% to the estimated total turnover for FY’ 07-08. And sources also divulged prêt-a-porter major plans to further invest an incredible Rs.6.2 billion by 2010.

A recent KSA Technopak report shows how the Indian elite-class market now comprises 1.6 million high-income households with earning capacity of Rs.4.5 million annually and is thundering up at 14% annually. Even before the proposed demerger, BRL is gearing up for exclusive tie ups with brands like Zara. “We will bring in four more global brands by the end of this year; and like Escada, we will have exclusive retail outlets too,” adds Tarun Joshi, CEO of BRL, to B&E.

The demerger will allow the group to transparently raise funds from the primary equity market focusing on retail investment. Also, shareholders would be able to clearly evaluate the value proposition of their investment in the demerged entity over the years, especially with BRL planning to roll out 250 stores across 110 cities by the end of next fiscal. While mergers globally have eaten away, on an average, between 50-80% of shareholder value, in this demerger case, Mr. Kumar, we guess you are right... absolutely!