INDIA BUSINESS WORLD - JULY - AUGUST - 2007
The Month that was ...

BOMBAY RAYON TO BUY LEELA'S GARMENT BIZ FOR RS 235 CRORE

THE Leela group will net Rs 235 crore from the sale of its garment business to Bombay Rayon Fashions (BRFL). While Rs 155 crore will be pocketed in a month's time, the remaining Rs 80 crore will accrue to the group later when Bombay Rayon takes over six manufacturing units of the company. The entire money will be ploughed into the hotel business.

Under the deal, Bombay Rayon gets all the plants and machineries in Leela's 21 manufacturing units, existing supply orders and five factories (land, building). Bombay Rayon gets to use 16 other factories on a five-year lease with an option to buy six of these 16 units for Rs 80 crore.

Leela will retain five units, which will be developed into commercial space for IT companies while the lease for the rest five factories (not owned by Leela) will be transferred to Bombay Rayon.

BRFL's wholly-owned subsidiary Bombay Rayon Apparel, which will own Leela's garment business, will have Leela Scottish Lace MD Dinesh Nair as non-executive chairman.

Leela Scottish Lace executive director Venu Krishnan, who is also the deputy MD of Hotel Leelaventure, says the decision to exit the garment business was prompted by the promoters' change in priorities and drastic changes in the global textile scenario.

"With the WTO regime kicking in, tax holiday for the textile industry was over and duty drawback had come down from 21% to 7%. Besides, quota phase-out made us feel that the assured business was not going to be there anymore. Our margins had started shrinking by over 10%. And this started four years back, just in anticipation of the quota phase-out," said Mr. Krishnan.

Meanwhile, the promoters had started focusing more on hospitality. "We knew we would be marginalised, if we didn't become an integrated textile player. With wages rising in India, we couldn't have enjoyed labour cost arbitrage for long," he added.

Captain C P Krishnan Nair, chairman of Leela group who established Leela Scottish Lace in 1957 and helped it grow to a Rs 400-crore company, was given lifetime achievement award by Apparel Export Promotion Council.