Arvind to demerge, list branded apparel and engineering business

Arvind Ltd will demerge and publicly list its branded apparel and engineering business in order to focus on its core textile business. Once the process of restructure is complete, Arvind Ltd will hold the textile business, Arvind Fashions Ltd, the branded apparels business and Anup Engineering Ltd, the engineering business. Arvind includes a portfolio of licensed international brands like Calvin Klein, US Polo Association and Tommy Hilfiger. Arvind is a pioneer in the business and has a huge portfolio under it.

Managing Director, Sanjal Lalbhai mentioned that three companies will get listed. The three businesses are going to be independent and will chart their own journey in the future. The shareholders of Arvind Ltd will get five shares of Arvind Fashions for each share of the parent company and will also receive 27 shares of Anup Engineering for each share of the parent firm. It is expected that the company will list two companies in six to nine months. Arvind aims to reduce the group’s debt with the strategy and invest more in the mainstay textile business which has been increasing at a slow compound annual growth rate of 5%.

Arvind has set aside Rs.1, 500 crore for the textile business for the next three financial years. This amount will come from internal accruals and the target is to increase the CAGR to 10-12%, which will make it a Rs.9000 to Rs.10000 crore business by 2022. In 2016, Arvind raised Rs.740 crore through the sale of 10% equity stake to Renuka Ramnath’s Multiples PE. Majority of the amount raised was used to reduce the company debt. As on 31st March 2017, Arvind Ltd reported a total debt of Rs.2,792 crore with a debt equity ratio of 1.07. The branded apparel business of Arvind made revenues of Rs.2,898 crore in 2017 which is a growth of 25% year on year. In the quarter ended September 2017, the segment’s consolidated revenue was Rs. 3157.78 crore and the debt equity ratio of the company was 0.6. The company expects Arvind Fashions to earn a revenue of Rs.9,000 crore by 2022.

Arvind showed a 15.8% decline in the year on year consolidated net profit at Rs.64.50 crore for the quarter ended September 2017. The consolidated total revenue rose by 12.7% year on year to Rs.2654.08 crore. The second quarter was a challenging quarter for the industry with the implementation of GST and its impact on the domestic textile business. The consumer facing brand business also had an impact in July since wholesale and retail channels remained under pressure. When the news was announced, the stock of the company rose by 3.65%. This is a mirror demerger and it should be noted that there will not be much positive sentiment for the stock. It brings about a significant change in the company and the approach to each of its business. It is expected that there will be a minor change in the share price of the company when the demerger process is completed.