Aditya Birla Fashion and Retail rights issue closes on July 22; should you subscribe?

The ABFRL rights issue is mainly aimed at reducing the debt and strengthening the balance sheet of the company taking the pandemic conditions into consideration that affects the earnings.

Aditya Birla Fashion and Retail (ABFRL) rights issue, which opened for subscription on July 8, will close on July 22. The firm has planned to raise Rs 995 crore via its rights issue of 9.05 crore partly paid-up equity shares with a face value of Rs 10 each. According to the company’s letter of offer, the dealings in the right entitlement for renunciation were permitted on the exchange from July 8 to July 17, 2020. Aditya Birla Fashions and Retail Rights Entitlement (RE) shares tumbled 74.5 per cent from its high of Rs 31.85, touched on July 9, 2020, to close at Rs 8.10 apiece on Friday, the last day of the trading. “The ABFRL rights issue is mainly aimed at reducing the debt and strengthening the balance sheet of the company taking the pandemic conditions into consideration that affects the earnings. The management has taken the right step for cutting the interest costs and other recurring costs in the current uncertain times of business revival,” Ravi Singh, Head of Research, Karvy Stock Broking told Financial Express Online.

Should you subscribe?

According to the analyst, the stock may perform well once the business operations return to normalcy after the vaccine’s arrival as their core sales are focused on the formal and high-end brands. “The strengthened balance sheet after the debt repayment would be an additional attraction. Given the pandemic conditions, investors who are looking into a long perspective of 2 to 3 years time frame may subscribe for the issue,” Singh added. The stock of the company is currently priced at around a multiple of 5 PE which would turn out to be an attractive valuation once the business resumes.

Payment in three tranches

The rights entitlement ratio is 9:77, which means that eligible shareholders will receive 9 partly paid-up rights shares for every 77 equity shares held as on record date of July 1. The lead managers to the issue are ICICI Securities, SBI Capital Markets, Axis Capital, BNP Paribas and CLSA India Pvt Ltd. While the registrar to the issue is Link Intime India Pvt Ltd. The investors who wish to subscribe need not pay the entire amount in one go. According to the company, the first installment of Rs 55 (50 per cent of the issue price) per share will be paid by investors on application. While the remaining amount will be payable in two parts, the second instalment of Rs 27.5 (25 per cent of the issue price) in January 2021 and the third instalment of Rs 27.5 in July 2021.

Aditya Birla Fashion and Retail will utilise the net proceeds from the issue for the repayment of certain borrowings of the company and general corporate purposes. Upon full subscription for and allotment of RE, the paid-up equity will go to 86.44 crore from 77.39 crore.

The promoter and promoter group of the company said they will “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”. They also said that in case of under subscription, i.e. below 90 per cent of the issue, they will subscribe to any additional equity shares among themselves for ensuring subscription to the extent of at least 90 per cent.

How Sebi’s RE platform helps investors

“Sebi’s rights entitlement platform helps the rights entitled shareholders, who opt to renunciate to get a fair value for their rights entitlements by trading across this RE platform,” Singh added. He further explained that before the introduction of rights entitlement platform by Sebi, the shareholders who had entitlement to the rights shares either subscribed, or transferred it to the other buyers at a little or no cost, or left it to renunciate.

Aditya Birla Fashion and Retail shares were trading at Rs 114.65 apiece, down 0.43 per cent in the afternoon deals, as compared to a 0.69 per cent rise in BSE Sensex.

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