Aditya Birla Fashion and Retail (ABFRL) shares continued to climb on Wednesday, as investors kept being drawn in by news of demerger. ABFRL shares were up by 0.50% to trade at Rs 237.30 at press time. The company’s soared by 11.58% on Tuesday as news of demerger got investors repositioning themselves. Demergers often allow companies to unlock their full growth potential by spinning off or splitting fast-growing or underperforming units/product lines.
Following the demerger, ABFRL will have ethnic wear, luxury brands, value retail and Gen Z-focused digital brands. On the other hand, the newly-created company, Madura Fashion Lifestyle (MFL) will house four leading brands including Louis Philippe, Van Heusen, Allen Solly, and Peter England. Furthermore, sportswear brand Reebok, American Eagle and Forever 21 will be under a separate entity.
While the parent company typically retains stake in the demerged company, a demerger can also allow it to raise capital from sale of equity stake in the new company. In addition, investors in the old company can receive share in the new company, increasing the value of their investment. In ABFRL’s case, the shareholders in the mother company will retain identical shareholding in the newly-created company. In addition, the company stated that the demerger will allow it to create a stronger balance sheet.
Notably, however, ABFRL’s share price is still down by 10.9% from its year-to-date highs of Rs 266 recorded on February 8th. Furthermore, the company’s net income declined by Rs. 778.7 billion in the last quarter of 2023, translating to a decline of 593.16%. However, its revenue increased by Rs. 41.67 billion or 16.1% during the same period.
Technical analysis
The momentum on the ABFRL shares price is declining, signaling control by the sellers, as shown by the RSI indicator. Furthermore, with the price below the 238.20 pivot mark, the downtrend will likely continue, with the first support at 231.40. A continuation of control by the sellers at that point could see further declines to test 220.75. Conversely, the buyers will need to return the price above the 238.20 pivot mark to sustain the upside. In that case, they could breach the resistance at 247.80, which could position them to test the next resistance at 254.35.
