NEW DELHI: Aditya Birla Fashion and Retail Ltd (ABFRL) is considering demerging its Madura fashion and lifestyle business from itself and making it a separate listed entity, the company said in a stock exchange filing on Monday.
ABFRL added that the proposed demerger would result in two separately listed companies as independent growth engines with different capital structures and parallel value creation opportunities.
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“The Board of Directors of Aditya Birla Fashion and Retail Ltd (ABFRL) in its meeting today has authorised the management of the company to explore vertical demerger of the Madura Fashion & Lifestyle business from ABFRL into a separate listed entity,” the statement said.
As part of the proposed demerger, the Madura Fashion and Lifestyle division (MFL), which comprises four lifestyle brands – Louis Philippe, Van Heusen, Allen Solly and Peter England – casual wear brands such as American Eagle and Forever 21, sportswear brand Reebok and Van Heusen’s innerwear business, will be spun off into a separate listed company.
ABFRL’s post-division portfolio will comprise of its value retail portfolio under Pantaloons & Style Up, ethnic wear portfolio with brands such as Tasva and Masaba, premium formats such as The Collective, Galeries Lafayette and the company’s recently forayed direct-to-consumer brands under the TMRW portfolio.
Following the completion of the proposed demerger, ABFRL said it plans to raise growth capital within 12 months to strengthen its balance sheet.
Aditya Birla Group chairman Kumar Mangalam Birla said the move was aimed at planning the retailer’s “next transformational phase of growth” and re-evaluating its structure to optimise different parts of its portfolio.
“Over the years, our fashion and retail business has grown from five brands in two categories to a dynamic portfolio of over 20 brands across all lifestyle categories. This portfolio evolution has seamlessly reflected changing consumption trends while encompassing all significant value creation opportunities. As the platform embarks on its next transformational phase of growth, there is room to re-evaluate its capital structure to optimise different parts of the portfolio. Our transition to a simpler, streamlined architecture is designed to unlock clear opportunities for value creation. This strategic realignment is poised to significantly enhance long-term stakeholder value,” Birla said in a statement.
The company said MFL’s portfolio has built leadership positions over the long term and has a track record of delivering consistent revenue growth, profitability, strong free cash flow and strong returns on capital.
“Aditya Birla Fashions stock has lagged badly compared to Tata’s Trent over the last few years. The stock would be a focused investment in high margin cash cow businesses like Madura and another cash guzzling business (ABFRL). A few years ago, Trent and Aditya Birla Fashions had similar market caps. Today, Trent is more than six times Aditya Birla Fashions’ market cap,” said Abneesh Roy, executive director and chairman of the research committee at Nuvama Institutional Equities.
Meanwhile, post-split, the remaining ABFRL will focus on ‘high growth’ segments driven by the shift from unbranded to branded, premiumisation, the rise of ultra-premium and luxury products and the rapid growth of Gen Z-focused digital-first brands.
“This restructuring will enable sharper focus on differentiated strategies aligned with individual business segments. Each of these businesses has always run autonomously under its own CEO so far,” Aditya Birla Fashion and Retail Ltd MD Ashish Dikshit said.
AFRL has been building a broader brand portfolio, especially since the COVID-19 pandemic, as major retail chains have been acquiring smaller labels to strengthen their position in the branded apparel and lifestyle market. This move has given AFRL a strong presence in both the Western and ethnic wear markets.
After operating primarily in the Western wear market, the company began its journey of building an ethnic wear portfolio in 2018. Over the past few years, the company has acquired majority stakes in designer brands like Sabyasachi, Shantnu & Nikhil, House of Masaba and artisan brand Jaypore. Additionally, it has developed its own brands like Tasva with Tarun Tahiliani and Marigold Lane.
In FY22, the company acquired the Indian operations of American footwear and clothing brand Reebok, strengthening its sportswear portfolio in the youth fashion segment. Additionally, the company established a new company, TMRW, in April 2022 to invest in and build digital-first brands in high-growth categories. It has since built a portfolio of brands such as Bewakoof, Berrylush, and 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, expected to grow at double digit rates in the long term.
ABFRL reported sales of Rs 12,418 crore for FY23, up 53% year-on-year. It reported a loss of Rs 8,200 crore. The company has 9,781 sales points in department stores across India and operates a network of 4,753 stores in about 37,106 multi-brand outlets.
The proposed demerger is subject to all statutory and customary approvals. After necessary approvals, the demerger will be effected through an NCLT scheme and all shareholders of ABFRL will hold equal shares in the newly formed entity.
ABFRL shares closed at Rs 211.70 per share, up 3.02 per cent, on the BSE on Monday.
