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Arvind Fashions Right Issue review (May apply)

Arvind Fashions Limited Logo

•    AFL is offering second rights issue within a year.
•    Last 21 months financial performance is discouraging.
•    Issue price is at negative P/E considering losses.
•    AFL operates in a highly competitive field with many players.
•    Cash surplus, risk savvy investors may consider parking of funds at their own risks.

PREFACE:
AFL has been issuing rights shares for the past two fiscals. It issued the right shares at Rs. 150 in March 2020 and mobilized Rs. 299.64 cr. It is now coming out with another rights issue for mobilizing Rs. 199.84 cr. with a price of Rs. 135 per share. This company was a subsidiary of Arvind Ltd. and was demerged and amalgamated with other group companies for synergy in the segment it is operating currently.

ABOUT COMPANY:
Arvind Fashions Ltd. (AFL) is engaged in the business of designing, sourcing, marketing and selling a wide portfolio of men's, women's and kids' branded readymade apparel, footwear, innerwear and other accessories across multiple owned and licensed brands. It sells products through a network of stores and distribution channel operated directly or through Subsidiaries and Joint Ventures. AFL's portfolio of branded apparel and footwear, spanning men's wear, women's wear and kids' wear, straddles various pricing tiers and has a presence across categories including but not limited to casual wear, formal wear, at leisure etc.

The company distributes and sells products across India through multiple distribution channels such as Exclusive Brand Outlets ('EBOs'), Multi-Brand Outlets ('MBOs'), Large Format Stores ('LFSs'), as well as e-commerce platforms, operated by it and operated by other e-commerce players. It is also engaged in the business of distributing and selling a select range of branded beauty products.

AFL has developed a large portfolio of brands and concepts across categories which include branded apparel, beauty products, footwear and accessories. It is a leading player and has a strong portfolio of owned and licensed international brands which include U. S. Polo Assn, Arrow, Tommy Hilfiger, Flying Machine, Calvin Klein, Unlimited etc (Source: Technopak Report).

The company commands a leadership position in the men's premium casual wear and denim categories and are a dominant player in premium kids wear and innerwear categories (Source: Technopak Report).

Its kids wear portfolio is focused on U. S. Polo Kids and Tommy Hilfiger Kids and its innerwear portfolio comprises brands like U. S. Polo Assn., Tommy Hilfiger and Calvin Klein. It has forayed into the prestige beauty products market through the brand 'Sephora'. 'Unlimited', its value business brand outlet, provides fashion at value prices, under which it sells products under brands such as Anahi, Cherokee, Donuts, Excalibur, Elle Studio, Karigari, Ruggers, Sugr, Colt, Bronz and others.

AFL's diversified portfolio of brands and variety of distribution channels allows it to maintain a balanced approach through which operating results do not depend solely on the performance of any single brand, category or channel. The company serves customers through a range of distribution channels which includes more than 1,200 EBOs, more than 14,000 MBOs and more than 3,400 LFS, spread across major states and union territories of India. AFL's stores are located in high streets, malls, mini-malls at prominent locations in major metros, large cities and other Tier II and Tier III cities, which give its stores better visibility and more footfalls.

It has a dedicated in-house design and merchandising team of approximately 136 members as of December 31, 2020.

ISSUE DETAILS:
The company is offering 14802856 equity shares of Rs. 4 each at a fixed price of Rs. 135 per share by way of a rights issue to the eligible shareholders in the ratio of 3 shares for every 20 shares held as on record date of February 24, 2021. AFL mulls raising Rs. 199.84 cr. via this rights issue offer. The issue opens for subscription on March 04, 2021, and will close on March 18, 2021. Investors have to pay on application Rs. 70 per share (Rs. 2 as Face Value and Rs. 68 as premium per share).  The balance money is to be paid after allotment on call at a later date. The company will spend approx. Rs. 1.81 cr. for the process of this rights issue. From the net proceeds, the company will spend Rs. 25 cr. for prepayment/repayment of certain borrowings, Rs. 125 cr. for investment in wholly-owned subsidiary ALBL for prepayment/repayment of its certain borrowings and Rs. 48.03 cr. as general corpus fund.

This issue is solely lead managed by Vivro Financial Services Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE.

Post rights issue, AFL's current paid-up equity capital of Rs. 39.47 cr. will stand enhanced to Rs. 45.40 cr. (after full payment). Based on the rights offer pricing, it is looking for a market cap of Rs. 1532.10 cr. and on the basis of its Last Traded Price (LTP) of Rs. 158.00 it is Rs. 1793.12 cr. at present.

FINANCIAL PERFORMANCE:
For the last two fiscals, AFL has (on a consolidated basis) reported turnover/net profits-(Loss) of Rs. 4643.86 cr. / Rs. 21.48 cr. (FY19) and Rs. 3866.30 cr. / Rs. - (Rs. 399.36) cr. (FY20). For the first nine months of the current fiscal ended on December 31, 2020, it has posted a loss of Rs. -(427.59) cr. on a turnover of Rs. 1535.32 cr. Thus for the past 21 months operations are showing a red bottom line. Based on this, the asking price is at a negative P/E.

MARKET PRICE MOVEMENT OF AFL:
Arvind Fashions Ltd. turned ex-right on February 23, 2021, at Rs. 166.00 in the opening and closed at Rs. 160.10. Since then it has been quoting between Rs. 164.65 and Rs. 157.05 with the last closing price of Rs. 158.00 as of March 02, 2021. It quoted at Rs. 164.75 at the close on cum-right basis on February 22, 2021. The scrip has posted the last 52 weeks high/low of Rs. 319.03 / Rs. 107.90.


Conclusion / Investment Strategy

Considering the last 21 months financial data, the company is showing declined top line and higher losses resulting in negative P/E for the right issue pricing. The segment is highly competitive with many domestic and MNC in the fray. Based on the latest performance, the issue is priced aggressively. Hence cash surplus risk savvy investors may consider investing in this right issue at their own risk.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Mar 2, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Arvind Fashions Rights Issue Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Arvind Fashions Rights Issue worth investing. The Arvind Fashions Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if Arvind Fashions Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Arvind Fashions Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.