What: ABFRL shares drop 67% as company implements demerger plan separating Madura Fashion operations into independent listed entity, with Rs 3,000 crore debt distribution.

Why it is important: The demerger highlights the evolving nature of Indian retail, where companies are separating diverse business portfolios to enhance operational efficiency and shareholder value.

Aditya Birla Fashion and Retail's shares experienced a significant 67% decline to Rs 88.80 on the NSE during the record date for its approved Madura Fashion & Lifestyle demerger. The share price movement reflects the demerger structure, where ABFRL shareholders will receive one equity share in Aditya Birla Lifestyle Brands Ltd (ABLBL) for each existing share. The newly formed ABLBL will manage key fashion brands including Louis Philippe, Van Heusen, Allen Solly, Peter England, Reebok, and international casual wear brands American Eagle and Forever 21. The financial restructuring involves distributing the existing Rs 3,000 crore debt, with Rs 1,000 crore transferring to ABLBL and ABFRL retaining Rs 2,000 crore. The company plans to secure additional funding of Rs 2,500 crore within 12 months post-demerger, including promoter contributions.

IADS Notes: Aditya Birla's demerger reflects broader transformation trends in Indian retail. According to BoF's April 2024 coverage , the separation of Madura Fashion & Lifestyle, which contributes over 70% of revenue, aims to optimise capital structures and enhance shareholder value while allowing targeted growth strategies. Inside Retail's May 2024 analysis  revealed how the company faced challenges despite 12.7% revenue growth to 139.96 billion rupees, with losses reaching 7.36 billion rupees, highlighting the need for strategic restructuring. Inside Retail's November 2024 report  showed continued pressure with Q2 losses of 2.15 billion rupees despite 13% revenue growth, driven by acquisition costs and increased borrowings. ET Retail's November 2024 coverage  demonstrated how India's luxury retail sector is evolving, with major players restructuring operations to capture growth opportunities in the maturing market. The demerger, transferring Rs 1,000 crore of debt to ABLBL while maintaining identical shareholder ownership, represents a strategic move to create focused entities better positioned for their respective market segments.

Aditya Birla Fashion and Retail demerger, with consequences on shares