Arvind Ltd. will carve out branded apparel and engineering businesses into separate listed firms as India's largest denim maker looks to unlock value from its fastest-growing lifestyle division that contributes more than a third of its revenue.
The board approved to transfer the apparel business to Arvind Fashions Ltd. and move the engineering division to Anveshan Heavy Engineering Ltd., according to a scheme of arrangement disclosed to the exchanges.
Arvind Fashions and Anveshan will issue new stock to Arvind shareholders, and won't pay any cash to either the parent or investors. For every 135 shares held, investors will get five shares of Anveshan and 27 of Arvind Fashions, according to BloombergQuint's calculations based on the data provided by the company.
Shares of Arvind fell as much as 8.3 percent, the most in about a year, after the announcement.
The restructuring would allow the company flexibility in attracting capital, it said in a statement. It will help unlock the full potential of the two divisions since they are unique and need to follow different strategies, Chairman and Manging Director Sanjay Lalbhai said. “They will have many more opportunities of raising resources for organic or inorganic growth,” he told BloombergQuint in an interview.
Arvind's consolidated sales rose 12.8 percent on a yearly basis to Rs 2,628.5 crore in the quarter ended September, according to its exchange filing. That was driven by 34.07 percent jump in sales of the apparel business to Rs 1,032.4 crore. Revenue of its largest textile segment remained flat at Rs 1,437.6 crore. Engineering's contribution was insignificant at Rs 47 crore.
Arvind makes fabrics and retails in-house apparel labels—Flying Machine, Newport and Excalibur—and global brands like GAP, Ed Hardy, Arrow, Hanes and WonderBra. The engineering division makes products for refineries, pharmaceutical companies, gas and power plants and aluminium producers. It will be renamed as Anup Engineering Ltd. after the restructuring.
The two businesses will be able to pursue independent strategies in regional and global markets, the company statement said.
Lalbhai said he expects the company to end the ongoing financial year with positive operational performance even for the brands business, which will automatically improve its return on capital employed.
Watch the full interview with Sanjay Lalbhai here.
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