Aditya Birla fashion and Retail hosted a conference call on April 22,2024. In the conference call the company was represented by Mr Ashish Dikshith –Managing Director and Mr Jagdish Bajaj –CFO.

Key Takeaways of the call                                                

The Board of Directors of Aditya Birla Fashion and Retail (ABFRL), at its meeting held on April 19,2024, approved the proposal of vertical de-merger of Madura Fashion and Lifestyle business from ABFRL into a newly incorporated company named as Aditya Birla Lifestyle Brands (ABLBL), which will be listed separately on completion of the de-merger.

The de-merger is expected to unlock significant value for the shareholders of ABFRL as each of the listed entities will have their own distinct capital structures, independent growth trajectories and value creation opportunities.

The de-merger will be implemented through an NCLT scheme of arrangement and upon completion of de-merger as per the share entitlement ratio approved by the Board and recommended by the independent valuer, the shareholders of ABFRL will get one share of ABLBL for every one share in ABFRL, in addition to their existing shareholding in ABFRL.

The business assets and liabilities will be split between the two companies in accordance with the prescribed regulatory provisions(sec 219AA). In line with this, the overall ABFRL borrowing, which is estimated to be Rs 3000 crore as of 31 March 2024, will be split between the two companies. The estimated debt to be transferred to ABLBL will be Rs 1000 crore, and the balance Rs 2000 crore will continue to stay with ABFRL.

The de-merger is expected to be completed in next 9-12 months. The company expects the order from NCLT with respect to TCNS clothing and to complete the process within next 4 months.

Aditya Birla Lifestyle Brands(ABLBL):

Post de-merger-Aditya Birla Lifestyle Brands which has a current revenue run rate will house Lifestyle brands- Louis Phillippe, Van Heusen, Allen Solly & Peter England; Casual wear brands- American Eagle & Forever 21; Sports wear brand-Reebok and innerwear business-Van Heusen brand.

ABLBL has an annualized revenue run rate of Rs 8000 crore.

All the businesses of the ABLBL are more or less stabilized and require less of growth CAPEX. ABLBL business will be able to generate sufficient free cash flow to fund its growth. The company plans reduce the debt from Rs 1000 crore to significantly lower in next 2-3 years.

Aditya Birla Fashion and Retail (ABFRL): Post demerges Aditya Birla Fashion and Retail will house lue retail under Pantaloons & Style up; Ethnic portfolio including designer wear partnerships and recently acquired portfolio of TCNS brands; luxury brands - The Collective, Galleries Lafayette and select luxury brands and digital brands.

ABFRL has a revenue run rate of around Rs 7000 crore.

Within 12 months after the completion of the de-merger, ABFRL plans to raise Rs 2,500 crore equity capital to strengthen its balance sheet and fund the growth of the portfolio business including value retail, ethnic portfolio, luxury brands. The company’s promoter group will fully support the proposed equity raise. The nature and the instrument with respect to equity infusion is still not decided.

Most the business under ABFRL are still small and need growth CAPEX to grow and stabilize.  Capital allocation will under the priority Ethnic brands, value retail and luxury brands.

Ethnic ware revenue is around Rs 2000 crore annually and the company expects the same to reach around Rs 4000-5000 crore in next 4-5 years.

The company had clearly laid out the strategy and the company is in a consolidation phase. The company is not looking for any major merger and amalgamation in the near term.

The management structure will be decided by the company closer to the de-merger.