BIG brands in fray to bond with Khadi

The 86-year-old Khadi brand will not be the same again. It is learnt that six companies, including Fabindia and Shoppers Stop, have shown interest in partnering eight Khadi Bhawans spread across India.

Besides, three Mumbai-based retailers have given a joint expression of interest for the public-private partnership with the Khadi Bhawans, officials told Business Standard on the condition of anonymity.

Delhi-based Sushila Khadi GramUdyog, a bulk-supplier to Khadi Bhawans, is also in the fray.

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The EoIs are in response to a tender floated by Khadi and Village Industries Commission for 'Khadi' marketing operation.

The proposal is for a 51-49 per cent partnership, where 51 per cent will be with the corporate entity. KVIC comes under the Ministry of MSME (Micro, Small and Medium Enterprises).

Audit firm PricewaterhouseCoopers, which is an advisor to the deal, along with KVIC will shortlist the applicants soon, before taking a final decision on the winners.

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The official spokesperson of Fabindia could not be contacted for a comment, and an email sent to the company remained unanswered.

Shoppers Stop neither confirmed nor denied the development.

A representative of Sushila Khadi GramUdyog said it had submitted an EoI for a partnership with the Khadi Bhawans. 

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Under PPP, eight direct sales outlets of KVIC in Delhi, Mumbai, Kolkata, Ernakulam (Kerala), Goa, Bhopal, Patna and Agartala will be handed over to a KVIC-corporate joint venture in the next six months.

The operation and management of these DSOs will be transferred to this joint venture under a lease contract, restricting any disposal of assets.

The historical Khadi Gramudyog Bhawan in the heart of the capital is among the outlets that are being considered for the JV arrangement with a corporate group.

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The KVIC-corporate JV is also expected to set up 20 new 'Khadi Plazas' in some of the commercial centres of the country.

While the marketing organisation will have a 51-49 per cent shareholding, production department will maintain 100 per cent KVIC ownership.

The corporate entities must have a networth of at least Rs 65 crore (Rs 650 million) and average turnover of more than Rs 100 crore (Rs 1 billion) in the last three financial years, starting from March 31, 2010, according to the KVIC tender.

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At least three years' experience in marketing, distribution or retailing is a must, the tender specifies.

Out of the EoIs submitted till June 6, those deemed fit on the basis of evaluation by KVIC and PwC will be termed QIPs (Qualified Interested Parties).

The QIPs will be invited to submit a proposal detailing their technical, financial and commercial capabilities and a binding financial bid.

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The QIPs will also get an opportunity to conduct a due diligence and take up site visits and will also have access to data rooms and hold discussions with the management of KVIC.

''The JV, which is a part of the Asian Development Bank's reform programme -- KRDP (Khadi Reform and Development Programme) -- for KVIC, is meant to do a radical repositioning of the Indian khadi industry to make it a self-sustaining unit," according to a senior official in the ministry of MSME (micro, small and medium enterprises).

The $150-million loan by Asian Development Bank for the khadi reform programme was signed on December 22, 2009. It's a three-year loan till 2012.

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Disapproving the JV, Ram Shastri, national convener of Khadi Swadeshi Forum (KSF), said: "Corporatisation of the labour-intensive khadi industry, which is supposed to be run on 'no profit, no loss' basis is its death knell, threatening the livelihood of one crore (10 million) khadi workers employed in it."

Earlier, the MSME ministry had listed five khadi bhawans as loss-making units. These were Gram Shilpa (Delhi); Khadi Bhawans in Patna, Bhopal, Kolkata and Goa.

MSME rejected the proposal of Directorate of Marketing, KVIC, to extend financial assistance for payment of salary and provident fund as per the 6th Pay Commission to loss-making units.

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Rather, such units were directed towards exploration of Internal Resource Generation (IRG) possibilities, and to henceforth earn their salary themselves.

It was also recommended that the loss-making Bhawans could be adopted (and provided logistic support, etc) by the better-performing ones.

Khadi bhawans in Kamla Market (Delhi), Agra, Ahmedabad, Bhubaneswar, Lucknow, Kolkata were declared loss-making before they were closed down.

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Corroborating these closures on ground, an official from the MSME ministry said all direct sale outlets (DSOs), except Delhi, were running on losses. Sales from 10 DSOs all over India are estimated at around Rs 45 crore (Rs 450 million).

Overall, there are 7,050 sales outlets owned by KVIC and they generate sales worth around Rs 1,000 crore (Rs 10 billion).

Lack of working capital and long gestation period in the production of khadi from cotton were the key reasons for shutting down of khadi units, according to a ministry official.

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He added that the khadi industry needed to be more aligned with the market forces of demand and supply.

Santosh Desai, CEO of Future Brands, said, "The Khadi brand has not aligned itself with the market forces and new age consumer. Freedom from government apparatus and focus on marketing will help khadi emerge as a strong brand because its concept is strong from the core."

Commenting on the brand, Madhukar Sabnavis, country head, Discovery and Planning, Ogilvy and Mather, India, said some private players were filling the gap in their own way "by leveraging on both traditional Indian materials and craft to position themselves at a more premium end of the market."