MUMBAI: Shares of Aditya Birla Fashion and Retail Ltd (ABFRL) have risen around 9% since the company announced a strategic partnership with designer Tarun Tahiliani on Wednesday. ABFRL and Tahiliani will launch a contemporary men’s ethnic wear brand, which will operate in the premium occasion wear segment at accessible price points.
Over the next five years, the new brand aims to build a Rs500 crore business. In the new entity, ABFRL will hold an 80% stake while Tahiliani the remaining 20%.
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ABFRL will also acquire a 33% stake in Tahiliani’s existing luxury couture business, with the option to increase it to 51% in the next few years.
Analysts from Edelweiss Securities Ltd, in a note, said, “Considering ABFRL has paid Rs67 crore for a 33.5% stake, it values the existing business at Rs200 crore. The deal multiple comes to 3.3 times FY20 sales, similar to the multiple paid for Sabyasachi. We await details on profitability to get a better sense on the valuation."
Clearly, the recent acquisitions indicate that ABFRL is betting big on ethnic wear segment. In January, ABFRL had acquired 51% stake in the Sabyasachi brand. Earlier, ABFRL also made investments in Jaypore and Shantanu & Nikhil (S&N).
“With the new venture, key thing to understand is how the company will differentiate it from S&N’s positioning and focus, which is also men’s wear driven," point out Edelweiss analysts.
Investors will now monitor how ABFRL scales up these ventures, going ahead. Some are skeptical, though.
In their December quarter results review report, analysts from JM Financial Institutional Securities Ltd said, “The decision to spend another Rs400 crore to acquire 51% interest in Sabyasachi Couture – another premium ethnic-wear venture is especially disappointing." They added, “That’s more so because it’s difficult to visualise how various small-sized ethnic-wear acquisitions would help piece together a reasonably-sized ethnic-wear business that could cater to the demand of an everyday Indian consumer."
Meanwhile, despite the appreciation in ABFRL’s shares this week, the stock is still about 34% lower than the pre-covid highs seen in February last year. To be sure, retailers have faced demand issues since the pandemic began and how demand shapes up would remain a key moniterable in the coming days.
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