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NEW DELHI: Investors of Arvind Fashions faced confusion on Friday, as the demerged entity of Arvind, which got listed on stock exchanges today, opened at a price that was much lower than the Street estimates.
“There was some confusion over the calculations, which the exchanges made based on their understating of the value of the demerged company,” Deepak Jasani, Head of Retail Research at HDFC Securities told ETMarkets.com.
According to a report by ET NOW, a complaint was filed and the stock exchanges were looking into it.
Investors were expecting corrective steps soon, the report suggested.
The base price of Rs 311 was said to be incorrect, as the Street was expecting a price discovery in the Rs 900-1,300 range.
The scrip got listed at Rs 591.30.
As per the demerger parameters last year, shareholders of Arvind Fashions (AFL) were to receive one fully paid up equity share for every five shares held in Arvind.
The last traded price of Arvind before the demerger was Rs 311.
Axis Capital on Thursday initiated coverage on the scrip with a fair value of Rs 1,400 based on 17 times March 2021 EV/Ebitda.
This, according to the brokerage, was at 20 per cent discount to its target multiple for Aditya Birla Fashion and Retail, Arvind Fashions’ closest listed peer.
“The expectation was that the scrip will open anywhere between Rs 900 and Rs 1,100, but it got stuck at Rs 621,” HDFC Securities’ Jasani said.
How soon the circuit limit will be revised is to be seen, Jasani added, saying that he does not see circuit limit to be revised for at least next two sessions.
“From the third or fourth day onwards, the limit may be revised to 20 per cent,” he said.
Shareholders of Anup Engineering, another demerged company, were allotted one fully paid up equity share of Rs 10 each for every 27 shares held in Arvind.
According to brokerages, Arvind Fashions has a strong portfolio of fashion brands, which predominantly focuses on men casuals and denims.
It has good retail presence in value fashion (Unlimited) and prestige beauty (Sephora).
It is targeting to be cash-flow positive by FY19 and free cash-flow neutral/positive by FY20, powered by profit growth, lower working capital and controlled capex, Anand Rathi Financial Services noted.
The company reported a 26 per cent growth in revenue and 37 per cent growth in Ebitda over FY16-18.
For FY18, it posted Rs 13 crore in profit against a loss of Rs 39 crore in FY16 and Rs 21 crore in FY17.
The management is expecting a 17 per cent growth in revenue over FY18-22, to Rs 800 crore.
It expects the Ebitda margin to expand 100 basis points every year and the return of capital employed to come in excess of 25 per cent.
“We bake in 16 per cent revenue CAGR and 34 per cent Ebitda CAGR over FY19-21E aided by 210 basis points expansion in Ebitda margin (led by operating leverage/cost efficiency-led gains in power brands and both specialty retail and emerging brands turning profitable as a portfolio),” Axis Capital said.
Approval for the demerger of Arvind and Arvind Fashions was obtained in May 2018.
Shareholders of the parent firm were to be issued one share in Arvind Fashions for every five shares in Arvind, and one in Anup Engineering for every 27 shares in Arvind.
The shares of the company closed 4.99 per cent higher at Rs 621.30 on the BSE.
