Debt ridden Lilliput scouts for new takers

Thursday, 23 February 2012
Debt ridden Lilliput scouts for new takersAfter a bitter public spat with its investors TPG and Bain Capital, Sanjeev Narula, founder of Lilliput, the country’s largest kids' wear brand has decided to sell off the debt ridden apparel chain. According to media reports, as many as five firms including Mahindra & Mahindra, and private equity funds Kohlberg Kravis Roberts & Co, Blackstone, L Capital and India Value Fund are in the race to takeover the company. They have signed non-disclosure agreements to enter into the negotiations. Along with the brand Lilliput, its retail assets and liabilities will go to the new owner. Narula will hold his two original businesses, garment manufacturing and exports, once the deal gets through.

AccordingDebt ridden Lilliput scouts for new takers to a study by IRIS Retail, Lilliput is currently under tremendous debt pressure of over Rs 700 crores. It is the largest player in the organized kidswear market with an estimated market share of 14.7 per cent followed by Gini & Jony (11 per cent) and Catmoss (7 per cent).

The issues surfaced when both PE investors TPG and Bain Capital accused Narula of fudging company funds after he announced his plans to raise funds through Rs 850-crores IPO last year. In turn, Narula filed a case against them in the Delhi High Court, accusing the investors of trying to stall the IPO and seize majority control.

Analysts say, this is another classic example of how Indian companies heavily borrow funds from PE investors on board to carry out its aggressive expansion plans without keeping the sales target ratio in mind. Lilliput now depends upon the goodwill it has earned among its target customers. While there are few branded players in the prospering kidswear segment in India, Lilliput has created a niche among its competitors. According to IRIS Retail, the organized kidswear market in India is Rs 3,000 crores, which is only 5.3 per cent of the overall organized apparel market, growing at 25 per cent annually.

Started in 1991 as a supplier to some large retailers, Lilliput entered direct retailing with a store in New Delhi in 2003. The company currently operates 275 stores, occupying a total retail space of over 7.5 lakh sq. ft., and employs close to 14,000 people across the country. It registered a net profit of Rs 40 crores on revenues of Rs 565 crores in 2010-11 and was targeting a turnover of Rs 950 crores in the year ending March 2012.