Aditya Birla Fashion and Retail Ltd (ABFRL) is evaluating a vertical demerger of the Madura Fashion & Lifestyle business from itself into a separate listed entity, the company said in an exchange filing on Monday.
The proposed demerger will help create two separately-listed companies as independent growth engines with distinct capital structures and parallel value-creation opportunities, ABFRL added.
“The board of directors of Aditya Birla Fashion and Retail Ltd. (ABFRL), at its meeting today, has authorized the management of the company to evaluate the vertical demerger of Madura Fashion & Lifestyle business from ABFRL into a separate listed company,” according to the statement.
As part of the proposed demerger, the Madura Fashion & Lifestyle business segment (MFL), consisting of four lifestyle brands including Louis Philippe, Van Heusen, Allen Solly, and Peter England, besides casual-wear brands such as American Eagle and Forever 21, sportswear brand Reebok and the innerwear business under Van Heusen, will be demerged into a separate listed entity.
The post-demerger portfolio of ABFRL would consist of value retail portfolio under Pantaloons & Style Up, ethnic wear portfolio with brands such as Tasva and Masaba, luxury formats including The Collective, Galeries Lafayette, apart from the company’s more recent foray into direct-to-consumer brands under the TMRW portfolio.
Subsequent to the completion of the proposed demerger, ABFRL will raise growth capital within 12 months to strengthen its balance sheet, the company said.
The move is aimed at charting out the retailer’s “next transformational phase of growth”, and to re-evaluate structures to optimize different parts of the portfolio, said Kumar Mangalam Birla, chairman, Aditya Birla Group.
“Over the years, our fashion and retail business has grown from 5 brands in 2 categories, to a dynamic portfolio of over 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 optimize 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,” Birla said in the statement.
The MFL 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 company said.
“Aditya Birla fashion stock has been a huge laggard last few years versus Tata’s Trent. This will hopefully give a focussed play of a cash cow business like Madura with high return ratio, and another business (ABFRL) which is cash guzzling. A few years back, market cap of Trent and Aditya Birla Fashion were similar. Now, Trent is more than 6x the market cap of Aditya Birla Fashion,” said Abneesh Roy, executive director & head of research committee, Nuvama Institutional Equities.
Meanwhile, post demerger, the remaining ABFRL will be focused on “high-growth” segments where there are tailwinds from a shift from unbranded to branded, premiumization, rise of super premium and luxury, and rapid growth in Gen Z-focused digital-first brands.
“The restructuring will help bring in sharper focus anchored on a differentiated strategy aligned with the individual business segment. Each of these businesses has always been operated autonomously under respective CEOs,” said Ashish Dikshit, MD, Aditya Birla Fashion and Retail Ltd.
AFRL has been building a wider portfolio of brands—especially post-covid, as the pandemic prompted large retail chains to buy smaller labels and consolidate their position in the branded apparel and lifestyle market. The move has given it a stronghold in both the western and ethnic wear markets.
In 2018, the company set on a path to create an ethnic-wear portfolio, after having largely operated in the market for western clothing. Over the past few years, the company has acquired majority stakes in designer brands such as Sabyasachi, Shantnu & Nikhil, House of Masaba, and the artisanal brand Jaypore. Additionally, it has also developed in-house brands such as Tasva with Tarun Tahiliani and Marigold Lane.
In FY22, the company acquired the India business of American footwear and clothing brand Reebok to strengthen its sportswear portfolio in the youth fashion space. Moreover, in April 2022, the company set up a new entity “TMRW”—to invest in and build digital-first brands in high-growth categories. It has since built a portfolio of brands such as Bewakoof, Berrylush, Juneberry. In September 2023, the company completed the acquisition of a 51% stake in TCNS Clothing, giving it access to brands such as W, Aurelia, and Wishful,
The Indian fashion and apparel sector is a $100-billion market and is set to grow at double digits in the long-term.
In FY23, ABFRL reported revenue of ₹12,418 crore, up 53% year-on-year. It reported a loss of ₹82 crore. The company operates a network of 4,753 stores across approximately 37,106 multi-brand outlets, with 9,781 points of sales in department stores across India.
The demerger proposal will be subject to all statutory and customary approvals. After the necessary approvals, the demerger will be implemented through an NCLT scheme of arrangement, and all shareholders of ABFRL will have identical shareholding in the newly formed entity.
Shares of ABFRL closed at ₹211.70 apiece, up 3.02%, on BSE on Monday.