Aditya Birla Fashion and Retail - Strategic tie-up with Flipkart - ICICI Securities

Aditya Birla Fashion and Retail (ABFRL) announced strategic partnership with Flipkart group (Walmart-owned India's leading digital commerce entities) with latter investing Rs15bn in the company for a minority 7.8% stake. With this capital raise, ABFRL can strengthened its balance sheet and accelerate growth enabling it to emerge as a strong omni-channel player. Flipkart, on the other hand, will be able to strengthen its range of brands through ABFRL's wide distribution network & retail infrastructure. This partnership aims to leverage complementary strength of both the companies to build scale for brands and expand overall reach, in our view. With key investors' concern on ABFRL's high leverage being addressed and improving visibility for acceleration in growth, we raise our DCF-based target price to Rs197/sh (earlier: Rs157) on half yearly rollover (Sep'22E). Maintain BUY.

- Flipkart investment will strengthen ABFRL's balance sheet via preferential issuance of Rs15bn at a price of Rs205/sh (24% premium to CMP). Post the said deal, promoters holding will come down from 59.8% to 55.1%. Along with rights issue of Rs10bn (at Rs110/sh) concluded in Jul'20, ABFRL will be raising Rs25bn by Jul'21, which can bring net debt down below Rs8bn by Jul'21 from Rs33bn in Jun'20 and net debt to EBITDA below 1x by FY22E.

- .....and accelerate growth plans: With strengthening of balance sheet, ABFRL can aggressively scale-up its existing businesses where it enjoys leadership position, while increasing presence in emerging high-growth categories such as innerwear, athleisure, casualwear and ethnic wear. Beside this, ABFRL may accelerate execution of large scale digital transformation, build strong omni-channel functionalities and augment its back-end capabilities. Online/e-commerce sales contributed ~6% to lifestyle brands sales in FY20 and its share is likely to more than double in FY21 and may further increase with this partnership with Flipkart.

- Flipkart to leverage ABFRL's large offline presence: Flipkart will be able to strengthen the range of its private brands and exclusive brands (including premium international/Indians brands) on Flipkart & Myntra through ABFRL's wide distribution network of >8mnsqft and retail infrastructure (via >3,000 stores including 342 Pantaloons stores) with consumers able to have in-store experience of such brands.

- Investments made or premium paid by Flipkart could be for securing certain rights: The investment agreement between both the companies inter-alia provides some rights to Flipkart group, such as pre-emption rights and right of first refusal, which are for a limited period between 1 and 5 years from the date of allotment of equity shares or if the equity shareholding of the investor falls below a certain threshold. ABFRL has also, in furtherance to existing B2B arrangement with Flipkart, entered into a commercial agreement (details of which are not disclosed) in relation to sale and distribution of various brands of the company.

Shares of Aditya Birla Fashion and Retail Ltd was last trading in BSE at Rs.165.05 as compared to the previous close of Rs. 153.4. The total number of shares traded during the day was 2088459 in over 29964 trades.

The stock hit an intraday high of Rs. 178.8 and intraday low of 150. The net turnover during the day was Rs. 349597942.

Source : Equity Bulls

Keywords