Aditya Birla Fashion Soars on Demerger News

2 Apr 2024 , 12:25 PM

Aditya Birla Fashion and Retail (ABFRL) shares touched the 10% upper circuit of ₹232.85 on the BSE on Tuesday following the announcement of intentions to assess the vertical demerger of ABFRL's Madura Fashion & Lifestyle business into a separate, publicly traded entity.

With different capital structures and concurrent value-creation prospects, the two separately listed firms that result from the proposed demerger will be able to grow independently.

ABFRL will concentrate on high-growth markets after the demerger, with favorable trends including the transition from unbranded to branded products, premiumization, the emergence of ultra-premium and luxury goods, and the quick expansion of Gen Z-focused digital-first businesses.

ABFRL's post-demerger portfolio would include luxury, digital, ethnic, and value retail brands.

The Madura Fashion & Lifestyle business segment (MFL), which includes the innerwear division of Van Heusen, the sportswear brand Reebok, American Eagle and Forever 21 as well as four lifestyle brands—Louis Phillippe, Van Heusen, Allen Solly, and Peter England—will be split into a different publicly traded company.

"The company's robust balance sheet will support its goals for future expansion. All ABFRL shareholders would own the same amount of shares in the newly created company following the required approvals, which will be carried out through an NCLT scheme of the arrangement, the company said last night.

In order to strengthen its financial sheet, ABFRL also plans to raise growth capital over the next 12 months once the proposed demerger is completed.

"The shift to a more streamlined and straightforward architecture is intended to open up unique possibilities for value development. It is anticipated that this strategic realignment will greatly increase long-term stakeholder value, according to Kumar Mangalam Birla, chairman of the Aditya Birla Group.

With a 9% one-year return, ABFRL shares have underperformed compared to the 25% increase in the Sensex over the same period last year.

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