Shares of Aditya Birla Fashion and Retail fell over 6 per cent in intraday trade on BSE on May 8, looking on course to extend the losing run into the third successive session, ahead of the company's conference call with the judges and institutional investors. 

In a BSE form on May 5, Aditya Birla Fashion and Retail said it had acquired between to equity shares of TCNS Clothing, representing between nearly 22 per cent and30.81 per cent of the expanded share capital of TCNS, at a consideration of ₹ 503 per shares. 

As per the BSE form, Aditya Birla Fashion will acquire up to 29 per cent of the expanded share capital of TCNS, subject to the minimal position of acceptance and after that, Aditya Birla Fashion will acquire shares which when added up with the equity shares acquired before, will affect in holding 51 per cent shares of TCNS. 

The accession is anticipated to be completed within 9- 12 months. The value of the protagonist stake and open offer consideration for TCNS is ₹ 1,650 crore for a 51 per cent stake, making this one of the largest deals in the Indian fashion space. 

TCNS Clothing is India's leading women's ingrained vesture company, with a net worth of about ₹635.68 crores as on September 30, 2022. The total development of the company, as per Aditya Birla Fashion's BSE form, was ₹933.03 crores as on December 31, 2022. 

Aditya Birla Fashion's advertisement brought mixed reviews from brokerage enterprises. Brokerage establishment Motilal Oswal Financial Services downgraded the stock to a' neutral' with a target price of ₹ 245. 

Motilal underlined Aditya Birla Fashion blazoned the accession of TCNS apparel in a two- step deal for a total value of ₹ 2900 crore i.e., 10 per cent below its current request cap of ₹ 3,220 crore with ₹ 1,650 crore of cash payout for 51 per cent stake and5.4 per cent dilution for the remaining 49 per cent stake. 

" Aditya Birla Fashion’s strong prosecution capability is reflected in its capability to gauge up a series of strong brands in the decade. While the Lifestyle member continues to deliver a healthy performance, a sluggish recovery in the Pantaloons member and incremental investments in new businesses could drag down profitability in the near term," Motilal said. 

" Expanding the ethnical wear and tear member and Reebok brand, as well as turning around the recently established D2C member, could prove to be a grueling trip for the company. The addition of TCNS in this portfolio may further accentuate the near- term profitability pitfalls," said Motilal Oswal. 

Motilal refocused out that assuming an 8 per cent EBITDA periphery( Pre IND- AS 116) in TCNS on FY25E, the company would be valued at par with Aditya Birla Fashion. still, the accession could potentially have an 18 per cent impact on earnings per share( EPS) i.e., ₹0.7 impact on EPS. 

" We revise our standing to neutral with a target price of ₹ 245. We factor in a profit/ EBITDA CAGR of 19 per cent/ 27 per cent over FY23- 25E. We value Aditya Birla Fashion on the SOTP base, assigning EV/ EBITDA of 10 times to Lifestyle Brands, 10 times to Pantaloons, and EV/ deals of one time to other businesses on FY25," said Motilal Oswal. 

On the other hand, Nuvama Wealth Management has maintained a steal call on Aditya Birla Fashion stock with a target price of ₹ 341. 

Nuvama said, unlike other combinations and accessions, this sale doesn't need to be looked at from an EPS accretion/ dilution perspective or solidarity. 

" The crucial aspect is the fit of the brand and more importantly, reversal, given that TCNS had been lagging peers in recovery and underperforming for further than two times now. Only a successful reversal of the same can produce shareholder value," said Nuvama. 

Nuvama underlined that from a valuation perspective, the sale is passing at 14 times and 11 times FY24 and FY25 EV EBITDA(post-IND AS), independently, which is a reasonable entry price. 

" Successful vesture retailers brands trade at valuations in excess of 30 times. Indeed from a backing perspective, Aditya Birla Fashion has limited cash outgo of ₹ 1,600 crore, which can potentially be financed from the pending flux from GIC, therefore limiting any debt rise," said Nuvama. 

Disclaimer The views and recommendations given in this composition are those of the brokerage enterprises. These don't represent the views of Mint. We advise investors to check with pukka experts before taking any investment opinions.