Aditya Birla Fashions' rights entitlement shares tumble 39%

Shares of Aditya Birla Fashions and Retail  – Rights Entitlement tanked 39 per cent to Rs 6.85 on the BSE on Thursday. The stock was trading lower for the fifth straight day and has plunged 78 per cent from its high of Rs 31.85, touched on July 9, 2020.

The dealings in the REs for Renunciation of Aditya Birla Fashion and Retail Ltd were permitted on the Exchange with effect from the July 8, 2020 and will close on July 17, 2020. The shares shall be settled on T+2 rolling settlement basis and the trades shall be settled on trade-for-trade basis. The REs shall be tradable in dematerialized form only.

The platform allows eligible shareholders to renunciate their shares for a price. Until now, shareholders, who didn’t wish to apply, had to let their RE lapse or had to transfer it for free.

At 01:25 pm, Aditya Birla Fashions and Retail-REL was trading 24 per cent lower at Rs 8.55 on the BSE. On the National Stock Exchange (NSE), the stock had plunged 23 per cent at Rs 8.50, after hitting a low of Rs 8.15 in intra-day trade today. A combined around 1.2 million equity shares have already changed hands on the NSE and BSE, exchange data shows.

Meanwhile, Aditya Birla Fashions and Retail's ordinary shares were down 1 per cent at Rs 114, trading lower for the fifth straight days. In the past week, the stock has declined 8 per cent, against 1.4 per cent fall in the S&P BSE Sensex.

The company proposed to raise Rs 995 crore by issuing 90.46 million equity shares at issue price of Rs 110 per share, assuming issue full subscription.  Rights issue opened on July 8 and will close on July 22, 2020. Existing shareholders will get nine partly-paid equity shares for every 77 existing fully-paid shares through the issue.

Investors will have to pay 50 per cent (Rs 55 per share) of the subscription amount at the time of application i.e by July 22, and the remaining amount will be paid in two installments - 25 per cent (Rs 27.5 per share) each in January 2021 and July 2021.

Aditya Birla Fashions and Retail said the Company intends to raise capital to meet its objectives of reducing its leverage, strengthening its balance sheet and for general corporate purposes, including working capital.

Owing to a sharp increase in working capital requirements (NWC days: 38 days vs. 14 days in FY19), net debt increased to Rs 2,500 crore (debt/EBITDA: 6.0x) as on FY20E. The management highlighted that the company has adequate access to banking lines due to lineage of Aditya Birla Group and no long term debt repayment obligation over the next year. Analysts at ICICI Securities believe that with its strong brand patronage and large distribution reach it will be able to revive its revenue growth post normalisation of situation.

“In FY21, the impact on balance sheet could come from two sources – cash-burn and increasing working capital (WC). We expect net debt in FY21 to reach Rs 1,900 crore, on the back of Rs 1,000 crore rights issue, partly offset by WC and maintenance capex of around Rs 20 – Rs 30 billion,” analysts at Motilal Oswal Securities said.

The brokerage firm believes that net debt would peak to Rs 3,000 crore in 1QFY21, with Rs 150 crore- Rs 180 crore monthly cash-burn and no material WC increase due to the lockdown. From 2QFY21, the cash-burn should reduce and turn into a source of cash flow 2HFY21 onwards. On the other hand, working capital could see minimal rise from an already large inventory increase of Rs 53.6 crore to Rs 840 crore in FY21E, it said.

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