Earlier this week, Aditya Birla Fashion announced buying a majority stake in TCNS Clothing which owns popular womenswear brands such as Aurelia and W. However, analysts at HDFC Securities and Motilal Oswal Investment Services expressed their dissatisfaction with the announcement, as they downgraded the stock’s rating.

The AB Fashion Analysts: The analyst team at HDFC Securities led by Jay Gandhi downgraded the stock’s rating to ‘add’ from ‘buy’ slashing the price target to ₹215 from ₹270.

Aliasgar Shakir-led analyst team at Motilal Oswal downgraded the stock’s rating to ‘neutral’ from ‘buy’ with a price target of ₹245 down from the ₹305 target it had earlier assigned.

The AB Fashion Thesis: HDFC Securities analysts noted that while the acquisition of TCNS will bolster ABFRL’s women’s ethnic wear portfolio in the mid-price range but it is a tough market to scale up.

Motilal Oswal analysts shared the same view, stating that the women’s ethnic wear segment, being the largest in the entire fashion apparel market, is also “highly crowded with a large section of unorganized players catering to highly price-conscious women consumers.” The firm said that building scale internally could have been a good alternative for the Aditya Birla Group company.

See also: What Is Campa Cola's Share Price And How To Buy?

The brokerages also pointed out that the acquisition puts a lot of stress on the company’s balance sheet. Motilal Oswal said that in the last few years, ABFRL has invested in multiple new businesses, with a long tail
of businesses that are presently loss-making or yet to stabilise. The firm added that adding TCNS to its portfolio may further accentuate the company’s near-term profitability risk.

HDFC Securities said that while they find ABFRL's rationale for acquiring TCNS logical the rising balance sheet vulnerability is a matter of concern.

Even investors do not seem to have liked the news of the merger. Since the announcement shares of AB Fashion have slumped close to 7%. TCNS share price, on the other hand, has plunged over 23% since the announcement.

Price Action: TCNS share price was down 0.51% to trade at ₹396.85. AB Fashion shares were up 0.03% at ₹199 in the late hours of trading on Thursday.

Read Next: When Will Nykaa Share Price Go Up?