The board of directors of Aditya Birla Fashion and Retail (ABFRL) on Friday approved the demerger of the Madura Fashion & Lifestyle (MFL) business, its biggest vertical, into a newly-incorporated company called Aditya Birla Lifestyle Brands (ABLBL), which will be listed separately once the demerger is completed.

With annual sales of Rs 7,959 crore in FY23, Madura brands and other lifestyle businesses accounted for nearly two-third of ABFRL’s total revenue of Rs 12,418 crore.

Friday’s announcement comes three weeks after ABFRL first indicated that it was considering a vertical demerger of its Madura business to unlock value and accelerate growth. Within 12 months of the demerger, ABFRL plans to raise Rs 2,500 crore in equity capital to strengthen its balance sheet and fund the growth of the remaining businesses. The company’s promoter group will fully support the proposed equity raise, the company said on Friday.

“Upon completion of the demerger, as per the share entitlement ratio approved by the board and recommended by the independent valuer, the shareholders of ABFRL will get one share of ABLBL for every one share in ABFRL, in addition to their existing shareholding in ABFRL. The business assets and liabilities will be split between the two companies in accordance with the prescribed regulatory provisions,” the company said.

ABLBL will house lifestyle brands such as Louis Phillippe, Van Heusen, Allen Solly & Peter England; casual wear brands such as American Eagle & Forever 21; sportswear brand Reebok; and Van Heusen innerwear.

ABFRL will house platforms such as Pantaloons & Style Up; an ethnic wear portfolio including designer-wear partnerships and the recently acquired portfolio of TCNS brands; luxury offerings such as The Collective, Galleries Lafayette; and a portfolio of digital brands under TMRW.

In line with the demerger plan, ABFRL’s overall borrowing, which is estimated to be Rs 3,000 crore as of March 31, 2024, will be split between the two companies, with about Rs 1,000 crore of debt going to ABLBL.

The demerger will be implemented through an NCLT scheme of arrangement and once complete, all shareholders of ABFRL will have identical stakes in both the companies, the firm said.

PWC LLP is the statutory auditor of the company and AZB is the legal counsel for the transaction. Bansi S Mehta Valuers LLP were the independent valuers to the transaction and INGA Ventures provided the fairness opinion.