Buy Aditya Birla Nuvo shares, target price of Rs 2,000, says Sharekhan

Brokerage house Sharekhan recommended Aditya Birla Nuvo (ABNL) shares after the announcement made by the Aditya Birla Group regarding demerger of brands and retail business under Aditya Birla Nuvo and merge it with another listed company Pantaloons Fashion & Retail (PFRL).

After the merger and consolidation, PFRL would be renamed as Aditya Birla Fashion & Retail (ABFRL) and would include the group's lifestyle and fashion business.

According to the swap-ratio, the shareholders of Aditya Birla Nuvo holding 100 shares will get 520 new equity shares of PFRL. Thus, overall 68-crore new shares would be issued by PFRL, while its existing base of 9.28-crore equity shares will go up to 77.28-crore shares.

A research report by Sharekhan said, "At the current price, the deal values ABNL's Madura fashion business at an equity value of Rs 9,000 crore, is largely in line with our apparel business valuation of Rs 8,600 crore. An investor can buy shares of Aditya Birla Nuvo for target price of Rs 2,000."

After the deal, ABFRL would emerge as the largest branded fashion retailing business with 1,900 stores and 5-million square feet of retail presence and gain from economies of scale and cost savings from the synergies between the merged businesses.

Moreover, this consolidation of lifestyle business under one roof would provide direct access to the shareholders to play on the efficient and promising fashion lifestyle business directly through ABFRL.

On May 4, share price of Aditya Birla Nuvo and Pantaloons Fashion and Retail surged 12.59 per cent to Rs 1,768 and 22.70 per cent to Rs 136.60, respectively.