Stock Analysis, IPO, Mutual Funds, Bonds & More

Tepid listing for Arvind Fashions

Investors blamed it on the ‘arbitrary’ price discovery mechanism imposed by exchanges

Mar 09, 2019, 09.52 AM IST
MUMBAI: Shares of Arvind Fashions, which got listed on Friday after demerger from the parent company, received a tepid response after the stock exchanges imposed a price discovery mechanism that investors say was arbitrary.

Arvind Fashions closed at Rs 621 against expectations that it will be valued between Rs 1,265 and Rs 1,562.

“They seem to have taken the price of Arvind Limited prior the de-merger as the base price,” said Gaurav Jogani of Axis Capital, which came out with a report with a target price of Rs 1,400 per share for Arvind Fashion recently.

“I am not aware of the technicalities of the price-discovery mechanism, but there is a definite valuation gap and hence there were more than one crore buyers at upper circuit. What price we have given is mostly to do with the company fundamentals. We are confident that the fair value will be discovered in the coming days,” he added.

Arvind Limited demerged itself into three firms last year the listing of the second firm Arvind Fashions happening on Friday. Arvind Fashions handles the branded and retail business and is the India franchise partner for Arrow, US Polo etc. Arvind had allotted one fully paid-up equity share of ?4 each of Arvind Fashions for every five shares held in the company.

These three businesses have a combined market capitalization of Rs 6,340 crore, much lower than ?8,054 crore before the demerger.

Shareholders and analysts are hopeful that the fair value of Arvind Fashion, which consists of the branded retail business will get discovered in the coming days.

ET tried to contact the management but they denied to comment on the development.

For listing of the demerged entity, the base price is announced at 9.15 am and the price discovery happens in the next 30 minutes based on demand and supply for the shares. At 10 am, the shares start trading.

“Exchanges considered an arbitrary base price of Rs 311 per share and put cap during the free price discovery system due to which unfair price discovery happened,” said Sunil Chandak one of the shareholders. “Investors who want to buy or sell are stuck and can’t do anything but wait for it to trade at a fair price,” he added As per the demerger procedure, the company gave valuation report to the stock exchanges and the regulator which suggested a price per share of ?1,329. The price was assigned by an independent valuer.

Various brokerages including Axis capital, Kotak securities, Edelweiss securities and UBS have given target prices ranging from Rs 1,265 to Rs 1,562. According to analysis by ETIG, the fair price should be near Rs 1,000 per share.

“I have no idea about how the exchanges arrived at the base price of Rs 311. I guess they considered the price of Arvind Ltd on the last day of demerger,” said Jitendra Agarwal, another shareholder.

“Arvind Fashions is best positioned to play the casualization trend in apparels market through its dominant portfolio of brands which makes it #1 player in casuals/denim. We see long-term growth potential for Arvind Fashion’s portfolio driven by a combination of category segmentation, tailored/targeted offerings for different channels and distribution expansion,” said Axis Securities.
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service