The issue seems to be well priced taking into consideration the ongoing pandemic environment and investor sentiments, say experts.
The rights issue of Aditya Birla Fashion and Retail (ABFRL) opened for subscription on July 8. The company is going to raise Rs 995 crore through its rights issue of 9,04,65,693 partly paid-up equity shares that will close on July 22.
Investors will have to pay 50 percent (Rs 55 per share) of the subscription amount at the time of application ie by July 22, and the remaining amount will be paid in two instalment - 25 percent (Rs 27.5 per share) each in January 2021 and July 2021.
Experts advised subscribing to the issue with a long-term view as it is well priced, given the strong management and outlook on the sector once the COVID-19 crisis gets over and the economy gets fully re-opens.
"The rights issue is structured similarly to that of Reliance Industries where shareholders will have to make payments in three tranches. As the lockdown is gradually lifted, retail stocks seem to be in a rebound mode. 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," Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor ,said.
The issue seems to be well priced taking into consideration the ongoing pandemic environment and investor sentiments, he said. Long term investors can consider subscribing the issue as proceeds, which will be utilized to reduce debt, act right in the current business atmosphere.
This is the first rights issue by ABFRL, which intends to raise capital for reducing its leverage, strengthening its balance sheet and for general corporate purposes, including working capital.
Aditya Birla Fashion and Retail is the country’s largest apparel company with brands including Louis Philippe, Van Heusen, Peter England, and Pantaloons.
"The stock is trading at Rs 124 which is down by 56 percent from its 2020 peak Rs 281.31 (24/02/2020), the fall is due to its financial leverage concerns mingled with ongoing pandemic affecting the business earnings," said Prashanth Tapse, AVP Research at Mehta Equities.
Mehta, too, thinks the issue is well priced and investors who wish to go long along with the future prospects of ABFRL can subscribe.
The rights entitlement ratio is 9:77 --eligible shareholders will get nine partly paid-up rights shares for every 77 equity shares held as on record date which was July 1.
The rights entitlement shares started trading on the exchanges on July 8 and on the first day itself, it was up 40 percent on the National Stock Exchange compared to its intrinsic value (the difference between ABFRL share price and rights issue price).
Promoter and promoter group of the company said 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.
Also in case of undersubscription below 90 percent, promoters said they would subscribe to any additional equity shares among themselves for ensuring subscription to the extent of at least 90 percent.
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