Aditya Birla Fashion and Retail - Strong execution; risk-reward better - ICICI Securities

Key takeaways from Aditya Birla Fashion and Retail's (ABFRL) Q3FY21 result: a) despite 20% YoY revenue decline, absolute EBITDA sustained at Q3FY20 levels led by tighter markdown and cost controls; b) strong performance in retail channel of Lifestyle brands, which declined only 8% YoY owing to strong festive and favourable wedding season; c) though Pantaloons witnessed revenue decline of 25% YoY, its EBITDA margin (pre Ind-AS116) expanded by ~300bps to an all-time high of ~13% on the back of improved product mix, lower discounts, and cost controls; d) store expansion was accelerated with 230 additions (gross) across businesses with entry into many new smaller towns and cities; and e) net debt declined from Rs32bn in Sep'20 to Rs6bn in Feb'21. We broadly maintain our FY22E-FY23E estimates with DCF-based target price unchanged at Rs197/share. Maintain BUY. Key risks: lower discretionary spends, and increasing competition.

- Standalone revenues declined 20% YoY to Rs20.6bn, while post Ind-AS 116 EBITDA (including other income) was flat YoY at Rs4.25bn during the quarter. Lifestyle brands revenues declined 19% YoY to Rs12.5bn. In Lifestyle brands, retail channel sales performed better, down only 8% YoY (LTL fell 17% YoY), while the impact on wholesale channel was higher with revenues shrinking 63% YoY (though secondary sales recovered by 70-80%). Management expects strong bounce-back in primary sales to the wholesale channel in Q4FY21. Lifestyle brands' EBITDA margin expanded by 140bps YoY.

- Pantaloons revenue declined 25% YoY to Rs8.1bn with LTL down 27% YoY. Mall business was down 30% while high street was lower at 18%. Metro and tier-1 markets recovered ~70% with improvement in smaller towns at ~85%. ABFRL added seven new stores and closed two in Q3FY21 taking the total count to 344 as at Dec'20-end. Its plan is to add ~25 stores in FY21. EBITDA margin (pre Ind-AS116) expanded by ~300bps to an all-time high of ~13% led by better product mix and inventory management, lower discounts, and tighter cost controls. E-commerce sales grew 2.3x YoY during the quarter. Share of private labels was marginally lower by 100bps YoY at 60% as ABFRL chose to remain low on winter wear sales.

- Cost optimisation continued in Q3FY21. Company reduced its fixed costs by Rs1.6bn and Rs8.7bn in Q3FY21 and H1FY21 respectively. Rent / employee / other expenses declined 13% / 26% / 28% YoY.

- Net debt declined from Rs32bn in Sep'20 to Rs6bn in Feb'21 led by Rs15bn investment by Flipkart, Rs2.5bn rights issue, and Rs8.5bn working capital release and operating profits. The same is likely to further reduce to Rs2.5bn by Mar'21 (before 51% stake acquisition in Sabyasachi at Rs4bn). Final call for rights issue of Rs2.5bn is scheduled for Jul'21.

- Innerwear & Athleisure witnessed 24% YoY growth with its presence across 20,000 outlets and e-commerce sales growing 2.3x YoY in Q3FY21. Global brands sales grew 20% YoY; while Forever21 sales were down 20% YoY. In Ethnic, Jaypore grew 15% YoY and added one store at Bangalore; while Shantanu & Nikhil added three EBOs.

Shares of Aditya Birla Fashion and Retail Ltd was last trading in BSE at Rs.166.35 as compared to the previous close of Rs. 167.75. The total number of shares traded during the day was 87516 in over 924 trades.

The stock hit an intraday high of Rs. 169 and intraday low of 164.55. The net turnover during the day was Rs. 14568109.

Source : Equity Bulls

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