Arvind Fashions falls for 5th straight day ahead of closure of rights issue

Yesterday, the company's right entitlement (RE) witnessed huge sell-offs

Shares of Arvind Fashions were locked in 5 per cent lower circuit at the bourses for the second straight day, down 5 per cent at Rs 149.25 on the BSE on Tuesday, ahead of the closure of its rights issue. The stock of the branded apparel company dipped for the fifth straight day, and has fallen 15 per cent during this period.

Till 12:54 pm, a combined around 41,000 equity shares had changed hands and there were pending sell orders for 270,000 shares on the NSE and BSE.

On July 9, Arvind Fashions board had approved the launch of company’s rights issue from June 29, which was earlier deferred in March’20. The size of the rights issue was also increased from around Rs 300 Crore to Rs 400 crore. The rights issue will close on Friday, July 17, 2020.

On Monday, the company’s right entitlement (RE) witnessed huge sell-offs with Kotak Standard Multicap Fund selling 483,404 shares at Rs 36.26 per share on the NSE, bulk deal data shows. From today, trading in RE is suspended due to procedural reasons. Arvind Fashions has lowered the issue price to Rs 100 per share from Rs 150 earlier. The company announced the ratio would be 62 equity shares for every 91 equity shares held.

Meanwhile, the company recently announced its March quarter earnings which also lowered investor sentiment. The company’s revenues for the quarter ended March 2020 (Q4FY20) fell 39 per cent year on year (YoY) to Rs 710.5 crore. As per management estimates, the company lost sales worth around Rs 300 crore due to Covid-19 disruptions. Lower gross margins, negative operating leverage led it to report EBITDA loss of Rs 92.3 crore for the quarter.

Arvind Fashions has a portfolio of branded apparel brands under its roof such as Calvin Klein, Tommy Hilfiger, US Polo Assn, Ed Hardy, Hanes, Arrow, Gant and Nautica.

“To address the balance sheet concerns, the company has proposed a rights issue worth Rs 400 crore and sold a minority stake in Arvind Youth Brands that houses brand 'Flying Machine' for cash consideration worth Rs 260 crore. Quantum of reduction in overall debt is likely to be lower than the cash infused in the business as part of proceeds will be utilised towards funding operational loses and payment to suppliers,” analysts at ICICI Securities said in result update.

Currently, 75 per cent of stores are operational with June sales reaching 30 per cent of pre-Covid levels. We remain cautious on the outlook given the highly levered balance sheet and ambiguous demand environment, the brokerage firm said.