CCI Approves Flipkart-Aditya Birla Fashion Deal, Despite FDI Violation

SUMMARY

Traders had written to commerce minister Piyush Goyal alleging that Flipkart cannot indulge in brand retailing through equity

DPIIT had also forwarded these complaints to the RBI and ED to take necessary action against Flipkart

Aditya Birla Fashion is said to have a growing presence in emerging high-growth categories

The Competition Commission of India (CCI), on Wednesday (January 20), approved Flipkart’s INR 1,500 Cr investment in Aditya Birla Fashion and Retail (ABFRL), which owns brands like Pantaloons, Allen Solly and Peter England.

“Commission approves acquisition of a 7.8% minority stake in Aditya Birla Fashion and Retail Ltd by Flipkart Investments Private Ltd,” India’s antitrust regulator tweeted.

Commission approves acquisition of a 7.8% minority stake in Aditya Birla Fashion and Retail Ltd by Flipkart Investments Private Ltd pic.twitter.com/Jjxi9rwXEM

— CCI (@CCI_India) January 20, 2021

The deal was announced in October 2020, and has also come under scrutiny for allegedly violating India’s foriegn direct investment (FDI) policy for ecommerce marketplaces such as Flipkart and Amazon India. The allegations were first raised by the Confederation of All India Traders (CAIT), who wrote to the commerce minister Piyush Goyal CAIT saying that Flipkart intends to make ABFRL a preferential seller on the marketplaces owned by the company.

The group added that the present FDI policy prohibits a foreign company to venture in any forms of multi-brand retail trading (MBRT) including through ecommerce by having any equity interests in the sellers on the market-platform, or control their inventory through side agreements, or under the garb of B2B ecommerce.

CAIT urged the government to prohibit the retail brand from directly or indirectly selling its inventory on the marketplace platforms owned by the Flipkart Group. It had also made several other allegations against Flipkart and Amazon India surrounding flouting Foreign Exchange Management Act (FEMA) rules.

On December 22, the Department of Promotions of Industry and Internal Trade (DPIIT) forwarded the four complaints by the association to the Reserve Bank of India (RBI) and Enforcement Directorate to take “necessary actions”.

What Does The Aditya Birla Deal Bring To Flipkart’s Table?

Aditya Birla Fashion and Retail operates a network of 3,004 stores and a presence across 23,700 multi-brand outlets, with 6,700 points of sales in department stores across India. A part of the funding from Flipkart in the stake sale will go towards aggressively scaling up its existing businesses and increasing presence in emerging high-growth categories such as innerwear, athleisure, casual wear and ethnic wear.

The company will use this capital to strengthen its balance sheet, which was impacted by store closure during the three-months of lockdown. “Over the years, we have shaped ABFRL into a strong platform to capture future growth opportunities in India. This partnership is a critical component of that strategy,” ABFRL’s chairperson Kumar Mangalam Birla said, adding that rapid growth of technology infrastructure will further accelerate this process.

In the financial year 2020, Aditya Birla Fashion and Retail reported INR 8,788 Cr in revenue with a market cap of around INR 13,000 Cr.

Meanwhile, Flipkart Group’s CEO Kalyan Krishnamurthy said, “Through this transaction with ABFRL, we will work towards making available a wide range of products for fashion-conscious consumers across different retail formats across the country.”