Arvind to demerge, list branded apparel, engineering businesses
Mumbai: Arvind Ltd will demerge and publicly list its branded apparel and engineering businesses to focus better on its core textiles business, the company said on Wednesday.
Once the restructuring is complete, Arvind Ltd will hold the textiles business, Arvind Fashions Ltd the branded apparels business and Anup Engineering Ltd the engineering business.
Arvind’s branded apparels business includes licensed international brands like Tommy Hilfiger, Calvin Klein and US Polo Association.
“Three of our companies will get listed,” Sanjay Lalbhai, chairman and managing director of Arvind Ltd, told reporters. “All these three businesses are going to be independent and will chart their own journeys in the future.”
Shareholders of Arvind Ltd will get five shares of Arvind Fashions for each share of the parent company, and 27 shares of Anup Engineering for each of the parent firm, Arvind director and chief financial officer Jayesh Shah said. The company expects to list the two companies in six to nine months.
Arvind is using the strategy to help reduce the group’s debt and invest more in the mainstay textiles business, which has been growing at a slow compound annual growth rate of 5%, Lalbhai said.
Arvind has earmarked Rs1,500 crore for the textiles business over the next three fiscal years. This will come entirely from internal accruals. The target is to raise the CAGR to 10-12%, making it a Rs9,000-10,000 crore business by 2022, Punit Lalbhai, executive director at Arvind, said.
Last year, Arvind raised Rs740 crore through the sale of a 10% equity stake to Renuka Ramnath’s Multiples PE, Mint reported on 26 October 2016. Most of it was used to reduce company debt. As of 31 March 2017, a truncated Arvind Ltd (post demerger) had total debt of Rs2,792 crore, with a debt-equity ratio of 1.07, according to a company investor presentation.
Arvind’s branded apparel business made revenues of Rs2,898 crore during FY17, a growth of 25% year on year. In the quarter ended September 2017, this segment’s consolidated revenue stood at Rs3,157.78 crore. The company’s debt equity ratio is at 0.6. The company expects Arvind Fashions to earn Rs9,000 crore in revenue by FY2022, said Kulin Lalbhai, executive director, Arvind.
Arvind reported a 15.8% year-on-year decline in consolidated net profit at Rs64.50 crore for the quarter ended September 2017, while consolidated total revenue rose 12.7% year on year to Rs2,654.08 crore. “The second quarter turned out to be another challenging quarter for the industry with GST implementation impacting out domestic textile business,” Sanjay Lalbhai said in a statement. “Even the consumer facing brands business was impacted in the month of July as both the wholesale and retail channels were under pressure,” he said.
Shares of Arvind Ltd closed 9.11% lower at Rs413.50 on the BSE on Wednesday while the benchmark BSE Sensex closed at 33,218.81 points, or 0.46% lower.
“A lot of the upward movement in stock had happened in the last few days,” Niket Shah, equities analyst with brokerage firm Motilal Oswal said. Arvind Ltd’s stock had risen 3.65% since Monday, when news of a press briefing was announced.
“This really is a mirror demerger and as such there wouldn’t be much more than a general positive sentiment for the stock,” Shah said, adding that the structures of the individual businesses being spun off remain the same. “Of course, Q2 was really bad but the demerger does not change the business circumstances around the companies as much,” Shah said.