Understanding the Aditya Birla Fashion and Retail Demerger: Key Insights
Aditya Birla Fashion and Retail Limited (ABFRL) has witnessed a dramatic drop in its share price, plummeting by 67% to Rs 88.80 during Thursday’s trading session. This decline coincides with the record date for the demerger of its Madura Fashion & Lifestyle division into a newly formed entity, Aditya Birla Lifestyle Brands Ltd (ABLBL). The restructuring plan, approved by ABFRL’s board last year, aims to create two distinct companies, each with its own operational strategies and financial frameworks.
Impact of the Demerger on Share Prices
The significant drop in ABFRL’s share price can be traced back to the specifics of the demerger. Shareholders of ABFRL will receive one equity share in ABLBL for each share they hold in ABFRL. Following the announcement, the stock, which closed at Rs 269.15 on Wednesday, opened at Rs 97 on Thursday before hitting a low of Rs 88.80. This represents a staggering 67% decrease from the previous day’s closing price. Even without considering the demerger’s impact, the stock still recorded a 9.4% decline from its opening value during the trading session.
Details of the Restructuring Plan
The restructuring plan involves separating the Madura Fashion and Lifestyle (MFL) division into ABLBL, which will oversee several prominent fashion brands. These include Louis Philippe, Van Heusen, Allen Solly, Peter England, Reebok, and international casual wear brands like American Eagle and Forever 21. The Van Heusen innerwear division will also be part of ABLBL. The separation will be carried out through a National Company Law Tribunal (NCLT) arrangement scheme, ensuring that existing ABFRL shareholders retain the same ownership percentages in both companies after the demerger.
Financial Reorganization and Future Plans
As part of the financial reorganization, ABFRL will transfer Rs 1,000 crore of its existing debt, which totals Rs 3,000 crore as of March 31, 2024, to ABLBL. ABFRL will retain the remaining Rs 2,000 crore of the debt. Additionally, the company plans to secure Rs 2,500 crore in funding within a year following the demerger, which will include contributions from its promoters. This financial restructuring is aimed at positioning both entities for future growth and expansion in their respective markets.
Outlook for ABFRL and ABLBL
The demerger is expected to allow both ABFRL and ABLBL to focus on their core business strategies and growth opportunities. By establishing two independent companies, each with tailored capital frameworks and expansion plans, the restructuring aims to enhance operational efficiency and shareholder value. As the market adjusts to these changes, stakeholders will be closely monitoring the performance of both entities in the coming months.
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