Aditya Birla Group (ABG) has consolidated its fashion retail business under the listed entity, Pantaloons Fashion and Retail Post, which has been rechristened as Aditya Birla Fashion and Retail. As part of the reorganisation, Aditya Birla Nuvo will spin off its wholly-owned subsidiary, Madura Garments Lifestyle Retail Company, to merge it with the new entity, which will have a combined turnover of ₹5,290 crore.

Investors of Aditya Birla Nuvo will get 26 shares of Aditya Birla Fashion and Retail for every 5 shares they currently hold, while investors of Madura Garments will get 7 shares of the new company for every 500 shares they hold now.

Post the transaction, ABG, the holding company will own a 56.1 per cent stake in the new entity; Aditya Birla Nuvo will have 9.06 per cent; and public holding will be 39.84 per cent. ABG currently owns 58 per cent in Aditya Birla Nuvo.

Kumar Mangalam Birla, Chairman of ABG, said the realignment would create the largest pure play fashion and lifestyle company with a presence in each and every price point.

“Investors of Aditya Birla Nuvo have been demanding for consolidation of the retail business for long. Now that we have fulfilled their wish, it shows that we not only listen to our investors but also carry out their plans,” he said.

Stemming losses The move is aimed at stemming the losses from the retail businesses by driving synergies between the various formats. Pantaloon Fashion & Retail, for example, with a sales turnover of ₹1,661.21 crore in FY-14, had recorded a loss of ₹187.73 crore. Sushil Agarwal, whole-time director and CFO, said the merger would result in huge savings when the combined entity negotiates for retail space, sourcing and adopting technology at a cheaper cost.

The new entity would have a debt of ₹473 crore transferred from Madura Garments and ₹1,300 crore already on the books of Pantaloons. The net worth of the new company will be ₹1,030 crore, including ₹350 crore of Pantaloons and ₹680 crore of Madura Garments. Aditya Birla Fashion will have the widest network in the fashion space with 1,869 exclusive stores covering 4.8 million sq ft.

Analysts said the combined entity will help margins grow faster. “Madura Garments has more cash flow than it needs to grow while Pantaloon is seeking cash to grow. Madura Garments is nearly double the turnover of Pantaloon. The combined entity will tap into synergies across brands, manufacturing, sourcing and real estate,” said Pankaj Jaju, Group Head, Strategic Corporate Group, Axis Bank.

‘More’ not included The apparels category is the largest contributor to the organised retailing market, which is expected to register a compounded annual growth rate of 18 per cent over the next few years, said CFO Agarwal. The residual holding of Kishore Biyani, who sold Pantaloons to the Birla Group two years ago, will come down to 2.5 per cent from 18 per cent. The equity base of Pantaloons will increase to 77.28 crore from 9.28 crore. Aditya Birla Group’s food and grocery brand ‘More’ will not be part of the merged entity. Abhishek Ranganathan, Vice-President Research, Phillip Capital, said: “Keeping out the hypermarket business is a good move since it was a loss-making company and had no synergies with the fashion business.”