E-land close to buying Mudra Lifestyle

MUMBAI: South Korea-based $7-billion textile chain E-land is acquiring Mumbai-based Mudra Lifestyle, according to sources familiar with the development, a rare instance of foreign investment in India’s textile sector.

Ganeshmal Surana, CFO of Mudra Lifestyle, told ET that the two sides were negotiating. “Talks are going on. However, we would not like to comment on this matter.”

According to the sources close to the development, the South Korean major has agreed to buy a minimum 51% stake in the company, which can go up to 67% after the open offer. It will be picking up close to 25% through fresh issuance of about 1.2 crore shares at Rs 60, resulting in the mandatory open offer.

Any shortfall in acquiring 67% stake will be met by the Indian promoters, who would sell their stake to the acquirer.

The promoters would be getting Rs 15 per share as non-compete fees, about 25% higher than the agreed price.
The total deal size is expected to be over Rs 200 crore as the company would receive Rs 72 crore, the promoters would recover about Rs 75 crore for selling their stake and the balance Rs 60 crore could go towards funding the open offer.

The promoters of the company—the Agarwal family—currently hold a 54.5% stake. ET has earlier reported the proposed deal in September.

“The Korean company will bring in their management to run the company,” said a senior official of the company who did not wish to be named. “However, current promoters will continue with a strategic stake in the company.”

On Friday, Mudra Lifestyle’s scrip closed at Rs 57, up about 4% from previous close, putting the company’s market capitalisation at Rs 204 crore.

The company reported a top line of Rs 365 crore for the financial year 2010. The company makes fabrics as well as garments and also processes and designs apparels for the domestic and export market. It is moving into designer shirts and women’s wear.

Unlike China in the 1970s and 80s and more recently countries like Vietnam and Bangladesh, foreign investors have largely India’s textile sector, which employs millions of people. It remains to be seen if this marks a break in this trend.

“This is win-win situation for both the companies,” said Sangeeta Tripathi, senior analyst, Sherkhan. “Mudra Lifestyle is getting premium valuation at the same time Korean company will get integrated manufacturing facilities for its overseas market.”

Analysts tracking the counter say that company has recently completed its capital expenditure programme with an investment of over Rs 300 crore, which may boost its number this financial year.

The integrated textile player has clients like Arvind, Raymonds and ITC in the domestic market and caters to Wal-Mart, Carrefour among others in the international market. It is expected to be running at a full capacity of weaving (85,000 metre/day), processing (140,000 metre/day), garmenting (27,000 pieces/day) and yarn dyeing (6 tonnes/day) by the end of this year.

E-Land group is a Seoul-based fashion and garment conglomerate with substantial presence in the fast growing Asian markets.

Founded in 1980 company had initiated franchisee model in South Korea to expand its retail reach before expanding into garment manufacturing. The deal is expected to give a strong foothold to the company in the low-cost, high-quality textiles market in India.