Aditya Birla Fashion and Retail - Poised for gradual recovery; better risk-reward - ICICI Securities

Key takeaways from Aditya Birla Fashion and Retail (ABFRL)'s Q1FY21 results: a) management expects normalcy to return by Q4FY21 - currently 90% of network is operational; b) 80% of network was operational during Jun'20 with stores reaching 50% of pre-Covid sales in Jun'20 exit - overall revenues still at 25-30% of pre-Covid levels in Jun'20; c) share of online / e-commerce channel to double in FY21 from 6% in FY20; although company plans to accelerate store expansion post normalcy; d) sharp focus on cost rationalisation - some of the cost savings to be structural; e) net debt to come down from the current Rs32.5bn to Rs20bn via rights issue and working capital release. Maintain BUY with DCF-based revised target price of Rs157/share (earlier: Rs130).

- Revenue declined 85% YoY to Rs3.2bn owing to Covid-19 lockdown; while EBITDA loss (including other income) stood at Rs1.8bn in Q1FY21. Lifestyle business revenues declined 81% YoY to Rs1.9bn. In Lifestyle business, 81% of network was operational by Jun'20-end with stores reaching 50% of pre-Covid sales in Jun'20. Management expects full normalcy of business operations by Q4FY21. The company has launched Work from Home collection, merchandise focused around health and safety during lockdown period. In Jun'20, e-commerce orders (by value) increased 166% YoY and management expects share of online/ e-commerce to double in FY21 from 6% in FY20. Lifestyle business reported EBITDA loss of Rs670mn. ABFRL witnessed higher demand for innerwear & athleisure mix with Jun'20 sales reaching 83% of last year.

- Pantaloons revenue declined 91% YoY to Rs820mn with EBITDA loss of Rs720mn in Q1FY21. Pantaloons have resumed 256 stores (75% of network) by Jun'20-end. The Company has witnessed traction building on Pantaloons.com and partnered e-commerce website where daily average volumes up 4.2x and 2.5x YoY respectively. Besides, share of private labels have increased 800bps YoY to 72% during the quarter aided by higher demand for kids wear.

- Management focus is on preserving cash through cost reduction, rationalising capex and optimising working capital. Company embarked on a series of cost reduction initiatives which include renegotiating rentals, cutting discretionary costs along with curtailing overhead expenses with a clear focus on productivity enhancement and efficiency improvement. The Company reduced costs by more than Rs4.5bn against Q4FY20 with some of the cost savings to be structural. Substantial savings from rentals and employee costs likely to flow from Q2FY21. Other income increased 10x YoY to Rs1.8bn which includes Rs1.6mn relating to reduction of rent and other charges for the period of store closures.

- ABFRL completed its rights issue of Rs10bn by offering 905mn shares at a price of Rs110/sh. It has raised Rs5bn in the first tranche in Jul'20 and next tranche will likely to happen in Q4FY21. Net debt likely to decline from current Rs32.5bn to Rs20bn via rights issue and working capital release.

Shares of Aditya Birla Fashion and Retail Ltd was last trading in BSE at Rs.129.1 as compared to the previous close of Rs. 129.9. The total number of shares traded during the day was 378859 in over 6103 trades.

The stock hit an intraday high of Rs. 133 and intraday low of 125.9. The net turnover during the day was Rs. 49177839.

Source : Equity Bulls

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