The main motive behind this demerger was to focus better on the core textiles business, Arvind had said.
Arvind shares fell as much as 71 percent in morning on Wednesday as it traded ex-demerger with effect from today. The stock hit fresh 52-week low of Rs 90.25, but it is the value of demerged entity which hived off from the main company.
The scrip was quoting at Rs 98.45, down Rs 213, or 68.39 percent, at 10:15 hours IST.
In same month last year, Arvind had announced the demerger of branded apparel and engineering businesses into separate entities which would be listed in 2019.
After demerger, Arvind will have the textiles business (denim, fabric and garments), advanced material (AMD) and other businesses.
Arvind Fashions, which will be holding company for all companies under brand & retail; and the engineering segment will be handled by Anup Engineering.
In October 2018, the National Company Law Tribunal had sanctioned the Composite Scheme of Arrangement amongst Arvind Limited and Arvind Fashions Limited and Anveshan Heavy Engineering Limited and The Anup Engineering Limited and their respective shareholders and creditors.
Arvind's shareholders will get five shares of Arvind Fashions and 27 shares of Anup Engineering for every share held in the parent firm.
The main motive behind this demerger was to focus better on the core textiles business.
While maintaining buy call on the stock with a new price target at Rs 114, Edelweiss said Arvind has been postponing investments in other segments in order to cater to the brand & retail (B&R) segment's capital requirements. This is now set to change, it believes.
Post the demerger, the company has chalked out Rs 2,500 crore investments over FY18-23 in the garments (to enhance capacity 4x by FY23E) and AMD (around 3x revenue guidance by FY23) segments, and enhance their share from around 30 percent currently to around 50 percent by FY23E, incrementally driving majority of the growth.
In garments, Arvind is planning to convert a major portion of its existing fabric business into garmenting orders driven by its one-stop integrated solutions and new capacity expansion, which will give it labour cost (Jharkhand & AP) and duty advantages (Ethiopia), Edelweiss said.
Management is confident that the AMD segment will post robust growth aided by Arvind’s tie-ups and certification & product approvals.
Edelweiss said target prices for the demerged segments (expected to list in January 2019) - brand & retail (18x FY20E EV/EBITDA) at Rs 259 and engineering (7x FY20E EV/EBITDA) at Rs 21 remain unchanged, leading to revised target price of Rs 394 (Rs 474 earlier) for the combined entity.
Axis Capital expects demerged Arvind's revenue CAGR at 12 percent and 20 percent EBIDTA CAGR over FY19-21. "The fair value of the textile business is Rs 157."
Demerged company may post FY19 revenue/EBIDTA/PAT of Rs 7,400 crore/Rs 830 crore/Rs 320 crore, the research house said, adding demerged entity will now invest cash flows to grow textiles business.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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