Shares of Aditya Birla Fashion and Retail (ABFRL) touched 15% upper circuit limit in opening trade on Tuesday after the Aditya Birla Group company unveiled a plan to split off its flagship lifestyle brand Madura Fashion & Lifestyle into a separate listed entity. The company, which owns Pantaloons, plans to create two growth engines with distinct value creation trajectories and a well-articulated capital allocation strategy, it says in a regulatory filing.

Cheering the news, shares of Aditya Birla Fashion opened higher for the third straight session at ₹232.85, up 9.5% against the previous closing price of ₹211.70 on the BSE. In the past three sessions, the Aditya Birla Group stock has risen nearly 19%.

Extending opening gains, the stock rose as much as 15% to ₹243.45, while its market capitalisation crossed ₹22,200 crore. The share price of the apparel retailer touched its 52-week high of ₹265.75 on February 8, 2024, and its 52-week low of ₹184.40 on May 23, 2023.

In an exchange filing last evening, ABFRL said that its board has authorised the management of the company to evaluate the vertical demerger of the Madura Fashion & Lifestyle business from ABFRL into a separate listed company. The demerger proposal is subject to all statutory approvals from ABFRL board of directors, shareholders, creditors, regulators, along with other customary approvals.

“The proposed demerger will enable the creation of two separately listed companies as independent growth engines with distinct capital structures and parallel value creation opportunities,” it says in a BSE filing.

The Madura Fashion & Lifestyle business segment (MFL), which consists of four lifestyle brands - Louis Phillippe, Van Heusen, Allen Solly, and Peter England - along with casual wear brands such as American Eagle & Forever 21, Reebok and the innerwear business under Van Heusen, will be demerged into a separate listed entity.

“This portfolio has built a leadership position over a long period of time and has a proven track record of delivering consistent revenue growth, profitability, strong free cash flows and high return on capital. The entity will have a strong balance sheet to power its future growth aspirations.”

Post necessary approvals, the demerger will be implemented through an National Company Law Tribunal (NCLT) scheme of arrangement, and all shareholders of ABFRL will have identical shareholding in the newly formed entity, the release highlights.

Kumar Mangalam Birla, Chairman, Aditya Birla Group, says, “Over the years, our fashion and retail business has grown from 5 brands in 2 categories, to a dynamic portfolio of 20+ brands across all lifestyle categories. The evolution of this portfolio has seamlessly mirrored the shift in consumption trends, with a play encompassing all large value creation opportunities.”

“As the platform embarks on its next transformational phase of growth, there is scope to re-evaluate capital structures to optimise different parts of the portfolio. The move towards a more simplified and streamlined architecture is designed to unlock distinct opportunities for value creation. This strategic realignment is poised to significantly enhance long-term stakeholder value,” he adds.

As per the release, post demerger, the remaining ABFRL will be focused on high-growth segments where there are tailwinds from a shift from unbranded to branded, premiumisation, rise of super premium & luxury, and rapid growth in Gen Z focused digital first brands. This is an attractive portfolio comprising of multiple high growth segments in large addressable markets with strong value creation opportunities, the release says.

The post-demerger portfolio of ABFRL would consist of value and fashion retail play under Pantaloons & Style Up; ethnic portfolio covering multiple occasions, price points and consumer segments, including designer wear; luxury & luxury platform of The Collective, Galleries Lafayette & select luxury brands; and digital first fashion brands, TMRW.

Following the completion of the proposed demerger, ABFRL plans to 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 release notes.

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