Arvind Fashions raises capital to turn business around

Fashion apparel brand Arvind Fashions (AFL) raised Rs 439 crore on Saturday by issuing equity shares to marquee investors and promoters at Rs 218.50 per share.

Arvind Fashions clocked revenue of Rs 2,329 crore in fiscal year (FY) 2021, which dropped 37 percent annually. Its losses widened to Rs 580 crore in FY 2021 , compared to losses of Rs 401 crore in the previous year.

Arvind Fashions will use the capital for growth in an uncertain environment.

“This capital will help deleverage the company’s balance sheet and fund growth in the coming quarters, thereby strengthening our leadership in the casual-wear, denim, and prestige beauty categories,” said Shailesh Chaturvedi, CEO of Arvind Fashions, in a stock exchange filing.

The participants in the latest fundraising include well-known investor Akash Bhanshali and Ashish Dhawan, co-founder of ChrysCapital, and foreign institutional investors University of Notre Dame Du Lac, GP Emerging Markets Strategies, and The Ram Fund.

Existing investor ICICI Prudential Mutual Fund and promoter entity Aura Merchandise also participated in the preferential issue. The completion of the transaction is subject to necessary shareholder and SEBI approvals.

AFL wants to invest in strengthening its D2C infrastructure, grow its presence on third party websites, and digitally enable its offline retail. It has partnered with ecommerce platform Flipkart to distribute its denim products like Flying Machine.

Flipkart bought 27 percent stake in Arvind Fashions' subsidiary Arvind Youth Brands for Rs 260 crore in FY 2021. “We have been connecting offline stores and warehouse inventory to our own fashion portal NNOW.com and third party marketplaces,” the company said in the 2020-21 annual report.

In July this year, Arvind Fashions sold its Unlimited chain of 74 stores, which was run by subsidiary Arvind Lifestyle Brands at its book value, with an estimated outlay of around Rs 150 crore at closing. This transaction is expected to be completed before September 2021.

“We believe the loss making Unlimited was a key drag on the company's operational performance," said brokerage ICICI Securities in a research report dated 23 July.

"This divestment will enable the company to focus on its six high conviction brands, strengthen its balance sheet by repaying debt, and improve company-wide profitability and return ratios.”

AFL's six high-conviction brands are U.S. Polo Assn., Flying Machine, Arrow, Tommy Hilfiger, Calvin Klein, Sephora.

The company has classified its brands in two categories: the 'Power Brands' are US Polo Assn., Tommy Hilfiger, Flying Machine and Arrow, while the 'Emerging Brands' are Calvin Klein, Sephora, Ed Hardy, and Aeropostale.

Its revenue from power brands in the first quarter of FY 2022 was Rs 262 crore, up 397.7 percent over the same quarter last year. Revenue from emerging brands was Rs 57 crore in the same quarter of FY 2022, up 197.5 percent over a year ago.

These brands “have a strong historical performance and robust long-term growth potential,” AFL said in the annual report. Sales from online channels increased 4.2 times in the quarter ended June 2021 over a year ago, where D2C business contributed more than 30 percent of online sales.

AFL reported a consolidated net loss of Rs 119 crore in the first quarter of FY 2022, compared to a consolidated net loss of Rs 41.04 crore in the previous quarter.