Aditya Birla Fashion and Retail Ltd.'s board has proposed a vertical demerger plan for its Madura Fashion & Lifestyle business as a separate listed entity.
After the demerger, ABFRL will raise growth capital within 12 months to infuse strength into its balance sheet, positioning itself well to pursue the large growth opportunity that lies ahead of it, the company said in an exchange filing.
After receiving the necessary approval, the demerger will be implemented through a National Company Law Tribunal scheme of arrangement. All the shareholders of ABFRL will receive identical shareholding in the newly formed entity, the filing said.
Shares of ABFRL surged 15% on Tuesday, compared to a flat NSE Nifty 50. The stock has, however, fallen 7.88% in one month and 6.29% over the year.
Key Levels To Watch
Resistance level: Rs 265.75 apiece (one-month high).
Support Levels: Rs 198.45 apiece (15-day low).
Post Demerger Effect
After the demerger, Madura Fashion & Lifestyle will consist of the following brands:
Four lifestyle brands: Louis Phillippe, Van Heusen, Allen Solly and Peter England.
Casual wear brands: American Eagle and Forever 21.
Sportswear brand: Reebok.
Innerwear business under Van Heusen.
The company's portfolio will also include value and masstige fashion retail play under Pantaloons and Style Up.
Its ethnic portfolio will include TCNS Clothing Co., Tasva, Masaba, Jaypore, Shantanu & Nikhil and Sabyasachi, among others.
Under the luxury segment it will consist of The Collective, Galleries, Lafayette and others
TMRW will be part of the digital brands under MFL.
Financial Impact Of The Demerger
Madura Fashion & Lifestyle business collectively contributed to approximately 60% of consolidated revenue and 75% of consolidated segment Ebitda, boasting a margin of 15.6% in the first nine months of FY24.
ABFRL ex-MFL businesses accounted for about 42% of consolidated revenue and approximately 26% of consolidated segment Ebitda, with a margin of 7.6% during the same period.
Street View
Citi maintains a 'sell' rating on ABFRL but raised the target price to Rs 220 apiece from Rs 211.65 per share.
It expects moderate growth for MFL post demerger but increased profitability, return on capital employed, and cash flows.
For ABFRL, Citi anticipates relatively higher growth but lower profitability and RoCE post-demerger. The proposed fund raise is expected to result in equity dilution, according to the brokerage.
However, investors expect the demerger and the fundraising to benefit them and ease their concerns about the complexity of the business and capital allocation, according to the statement.
Citi does not see an imminent improvement in demand trends, compounded by high operating and financial leverage. ABFRL's growth and profitability will be most significantly impacted by its coverage, according to it.
Analysts Recommendations
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