The ABFRL board at its meeting held on Monday authorised the management of the company to evaluate the vertical demerger of Madura Fashion & Lifestyle business, according to a company statement.

“The proposed demerger will enable the creation of two separately listed companies as independent growth engines with distinct capital structures and parallel value creation opportunities,” it said.

Moreover, after the completion of the proposed demerger, ABFRL “will raise growth capital within 12 months” to strengthen its balance sheet, and pursue the large growth opportunity, it added.

The Madura Fashion & Lifestyle (MFL) business consists of four fast fashion brands – Louis Phillippe, Van Heusen, Allen Solly and Peter England – along with casual wear brands viz. American Eagle and Forever 21.

It also has a brand licence for the sportswear brand Reebok and the innerwear business under Van Heusen, which will be demerged into a separate listed entity, it said.

In FY23, MFL contributed ₹8,306.97 crore to ABFRL’s consolidated revenue of ₹12,417.90 crore.

“This portfolio has built a leadership position over a long period of time and has a proven track record of delivering consistent revenue growth, profitability, strong free cash flows and high return on capital,” it said, adding that “the entity will have a strong balance sheet to power its future growth aspirations”.

MFL business was acquired by the Aditya Birla Group firm in December 1999 from the India unit of Coats Viyella, a British multinational company manufacturing apparel, footwear, and performance materials.

Indian Rayon and Industries, an Aditya Birla Group firm had acquired Madura Garments, the readymade garments division of Madura Coats Ltd, including the rights for its premium brands in Saarc and Middle East countries for ₹236.23 crore.

After the demerger of MFL, ABFRL will have Pantaloons and Style Up business, focusing on value retail. Besides it will also have an ethnic Portfolio covering multiple occasions, price points and consumer segments, including a designer wear portfolio.

It will also have a luxury business portfolio, where it has – The Collective, Galleries Lafayette and other selected luxury brands.

Besides, it will also have TMRW business, which has a portfolio of digital-first fashion brands.

After necessary approvals, MFL’s demerger will be implemented through an NCLT scheme of arrangement, and all shareholders of ABFRL will have identical shareholding in the newly formed entity, it added.

“The proposal will be subject to all statutory approvals from ABFRL Board of Directors, shareholders, creditors, regulators, along with other customary approvals,” it said.

Aditya Birla Group Chairman Kumar Mangalam Birla said the move is designed towards a more simplified and streamlined architecture to unlock distinct opportunities for value creation and is poised to significantly enhance long-term stakeholder value.

“The evolution of this portfolio has seamlessly mirrored the shift in consumption trends, with a play encompassing all large value creation opportunities. As the platform embarks on its next transformational phase of growth, there is scope to re-evaluate capital structures to optimise different parts of the portfolio,” he said.

Post demerger, the remaining ABFRL business will be focused on high-growth segments where there are tailwinds from a shift from unbranded to branded, premiumisation, rise of super premium & luxury, and rapid growth in Gen Z-focused digital-first brands, it said.

Shares of Aditya Birla Fashion and Retail Ltd settled 3.02 per cent higher at ₹211.70 apiece on the BSE.