Shares of Mandhana Industries, which is selling garments under the brand ‘Being Human’ of Salman Khan Foundation, have hit the 20 per cent lower circuit during each of the past two trading sessions. After the sharp fall in the stock price, Mandhana has announced that it is in the process of demerging the Being Human retail business into a separate company Mandhana Retail Ventures.
Investors who wish to take advantage of the fallen stock price by making fresh purchases need to consider a few risk factors. After the demerger of the retail business, Mandhana may not offer much value to shareholders. In the last few years, the stock has enjoyed good investor interest due to the company’s tie-up with ‘Being Human’, which although smaller in size was the most profitable and high growth business. The retail business had operating margin before depreciation of as high as 25 per cent and contributed 10-15 per cent of the consolidated sales.
Investors need to be aware of two more risks associated with the company. One, there is uncertainty over the terms at which the licence agreement with the foundation, Being Human, would be re-negotiated.
The company said that it is in the process of signing a new contract with the foundation. In the earlier agreement, Mandhana has been paying close to 5 per cent of its sales as royalty income. Second is that the demerger ratio may not be in favour of the shareholders.
