ABFRL Demerger: Is Aditya Birla Fashion share price really 66% down as the spin-off kicks in? Explained

Aditya Birla Fashion (ABFRL) share price was trading over 66 per cent below its last closing price in trade on Thursday, May 22, as today is the record date for the spin-off of Madura Fashion & Lifestyle business into a separate-listed entity.

ABFRL share price opened at ₹97 following the demerger as against its previous closing price of ₹269.15 on Wednesday. In intra-day trade, the stock touched a low of ₹88.80 apiece.

Why does ABFRL stock appear 66% down?

While dramatic, the sharp fall in ABFRL shares is not a sell-off but a notional price adjustment reflecting the separation of the fashion and lifestyle business, which will now operate as a separate entity. 

When a company is demerged, it splits into two (or more) parts. After the record date, the original company’s share price adjusts downward to reflect the fact that it no longer includes the value of the spun-off business. Therefore, the stock price currently is not factoring in the fashion business into ABFRL's fundamentals.

ABFRL demerger details

The demerger, which received approval from ABFRL's board last year, entails the vertical split of the Madura Fashion and Lifestyle (MFL) division into a separate company named ABLBL.

Under the approved scheme, shareholders of ABFRL will receive shares of ABLBL in a 1:1 ratio. This means that for every one fully paid-up equity share of ABFRL with a face value of ₹10, shareholders will be allotted one fully paid-up equity share of ABLBL with the same face value. The allotment will be made by ABLBL to those holding ABFRL shares as of the designated Record Date.

The equity shares to be issued by ABLBL are planned to be listed on BSE Limited and the National Stock Exchange of India Limited.

This restructuring aims to establish two independent publicly listed companies, each with its own capital framework and strategic growth plans. ABLBL will include well-known brands such as Louis Philippe, Van Heusen, Allen Solly, Peter England, and Reebok, along with casual wear labels like American Eagle and Forever 21, and the innerwear line under Van Heusen.

The demerger is set to be carried out through a scheme of arrangement under the NCLT. After the process is finalised, ABFRL shareholders will retain the same ownership stakes in both ABFRL and the newly formed ABLBL.

As part of this restructuring, ₹1,000 crore out of ABFRL’s total debt of ₹3,000 crore (as of March 31, 2024) will be transferred to ABLBL, while ₹2,000 crore will remain with ABFRL.

Additionally, the company intends to raise ₹2,500 crore within a year of the demerger, with backing from the promoters.

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