On 8 July, the rights issue of Aditya Birla Fashion and Retail opened for subscription. The apparel company known for selling products by brands including Louis Philippe, Van Heusen, Peter England, and Pantaloons, is going to raise Rs 995 crore through the issue of 9,04,65,693 partly paid-up equity shares.
Details on the rights issue
- Open from 8 to 22 July 2020
- The issue is priced at Rs 110 per share
- Investors will have to pay 50 percent of the subscription amount (i.e. Rs 55 per share) at the time of application and the remaining amount will be paid in two instalments: Rs 27.5 per share each in January 2021 and July 2021.
- Eligible shareholders will get nine partly paid-up rights shares for every 77 equity shares held as on record date (1 July).
- It is the first rights issue by Aditya Birla Fashion and Retail, which is looking to raise capital for reducing its leverage, strengthening its balance sheet and for general corporate purposes, including working capital.
- Promoter and promoter group of the company, led by billionaire Kumar Mangalam Birla, have said that they would fully subscribe to the extent of their rights entitlement and do not intend to renounce such rights except to the extent of renunciation within the promoters and promoter group.
- In case of under subscription below 90 percent, promoters will subscribe to additional equity, to ensure subscription of at least 90 percent.
- The rights entitlement shares started trading on the exchanges on 8 July and has been performing well.
Should you subscribe?
Experts say that the rights issue is priced at an attractive valuation. "The factors like manageable leverage, consistent execution capability, healthy cost-cutting initiatives and strong parentage might help ABFRL emerge much stronger from the current crisis," said Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor as quoted by Moneycontrol.
On the other hand, Economic Times' Intelligence Group has raised concerns on the company's debt of Rs 2,500 crore at the end of March 2020 with an operating profit of Rs 470 crore as it implies a debt/EBITDA ratio multiple of 5.3. A ratio above four raises concerns, it said. The report further said that while the proceeds from the rights issue will help reduce debt, there is a risk that if the work-from-home model continues, it will affect many of Aditya Birla Fashion and Retail's brands which are positioned as formal and high-end apparel.
Other experts suggest that those who wish to go with the long prospects of Aditya Birla Fashion can subscribe to the rights issue, keeping the outlook of its business after the economy full recovers and strong management.
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