Aditya Birla Fashion becomes more ethnic with TCNS

Aditya Birla Fashion's ever-increasing brand portfolio has a new entrant. It will soon acquire a 51 per cent stake in TCNS Clothing, a leading women's ethnic wear manufacturer, for Rs 1,650 crore.

It will acquire up to a 29 per cent stake in the company through a public offer at Rs 503 per share and the rest from promoters.

Post the acquisition, Aditya Birla Fashion plans to merge TCNS with itself and give its shareholders 11 shares of Aditya Birla Fashion for every six shares held in TCNS.

A bit about TCNS Clothing
TCNS is primarily known for its ethnic garments. It has four major brands in its portfolio:

• Premium fusion wear brand - W (54 per cent of revenue in FY22);
• Contemporary ethnic wear brand - Aurelia (39 per cent of revenue);
• Premium occasional wear brand - Wishful (six per cent of revenue);
• Bottom wear brand - Elleven (one per cent of revenue).

The company got listed in 2018. In the last five years (FY17-FY22), its revenue grew by five per cent per annum. But its operating profit fell by 161 per cent per annum as it recorded losses in FY21 and FY22 due to a dip in revenue. Also, due to low revenue growth and inconsistent profitability, its ROE has been volatile, with a five-year median ROE of just 11.8 per cent.

At Rs 503 per share, Aditya Birla Fashion's offer price, the company will be valued at Rs 3,105 crore in the acquisition deal, 3.5 per cent lower than its closing market cap as of May 05, 2023. The news of this lower valuation wasn't taken kindly by market participants, which pummelled share prices by 20 per cent today.

Why Aditya Birla Fashion is acquiring the company
Aditya Birla wants to capitalise on the rising demand for ethnic wear and the segment's higher margins. It has been slowly increasing its presence in the segment through acquisitions.

In 2019, it acquired a 51 per cent stake in M/s Finesse International Design (which operates under the brand name 'Shantanu & Nikhil') for Rs 60 crore and 'Jaypore' for Rs 110 crore; in 2021, it acquired a 33 per cent stake in Tarun Tahiliani for Rs 67 crore and 51 per cent stake in Sabyasachi for Rs 398 crore; recently in 2022, it acquired House of Masaba for Rs 90 crore.

TCNS is now the latest addition to the above list.

Here's how the acquisition is expected to boost Aditya Birla Fashion's revenue from the ethnic segment.

Disclaimer: This is not a stock recommendation. Do the due diligence before investing.

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