Aditya Birla Fashion and Retail – A Better Than Expected Recovery – HDFC Securities

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Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

The recovery exceeded expectations (at 37.5% of pre-COVID sales versus 33%), led mainly by Madura, while pants continued to lag. Madura and Pantaloons grew by 134% and 129% respectively (INR5.55 / 2.2 billion vs HSIE: INR4.1 / 2.6 billion). GM’s annual recovery (49.6%) was stronger than expected (HSIE: 47.7%), driven by (1) lower than expected supply and inventory release levels and (2) sales retail higher in Lifestyle brands. The EBITDA loss amounted to INR 1.6 billion (HSIE: INR 2.5 billion). Net debt increased from QoQ to INR12bn, courtesy working capital and loss financing. EBITDA estimates for fiscal year 23/24 remain largely unchanged. We maintain our PURCHASE recommendation on ABFRL with a DCF based TP of 250 INR / sh, implying 15x Jun-FY23 EV / EBITDA.

Highlights 1QFY22: Revenue increased 142% year-on-year to INR 7.7 billion (standalone). Lifestyle brands recovered 43% of 1QFY20 sales (HSIE: 33%) anchored by online sales (98% of pre-COVID19 sales) and a reasonable recovery in the retail channel (47% of sales pre-COVID19) Wholesale channel remains energized (at 19% of 1QFY20 sales). The pants fell behind expectations. The value format grew 129% year-on-year to INR 2.2 billion (HSIE: 2.6 billion). Other businesses grew 155% year-over-year (96% of sales in the first quarter of fiscal 2020). GM’s annual recovery (49.6%) was stronger than expected (HSIE: 47.7%), driven by (1) lower than expected supply and inventory release levels and (2) sales retail higher in Lifestyle brands. The EBITDA loss amounted to INR 1.6 billion (HSIE: INR 2.5 billion). The company intends to aggressively start adding stores in 2HFY22. Net debt increased in QoQ to INR12bn (INR6.5bn in 4Q), thanks to WC and loss financing.

Outlook: We are encouraged by the recovery in ABFRL’s revenue / margin. Our EBITDA estimates for fiscal year 23/24 remain largely unchanged. We maintain BUY on ABFRL with a DCF based TP of 250 INR / sh, involving 15x Jun-FY23 EV / EBITDA.

Aditya Birla Fashion and Retail Limited shares were last trading in BSE at Rs. 221.9 from the previous close of Rs. 224.45. The total number of shares traded during the day was 167,124 in over 1980 transactions.

The action hit an intraday high of Rs. 227.55 and an intraday low of 219.85. The net turnover during the day was Rs. 37,272,617.


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