BUY on Aditya Birla Fashion and Retail - Just got nimbler - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

Recovery was all-round at 80% (HSIE: 73%) as all verticals beat expectations. Madura/Pantaloons recovered 81/75% resp. (HSIE: 72/71%). Gross margin recoup (52.3%) was sharper than expected, led by 1. Lower inventory provisioning and discounting levels and 2. Higher retail sales in Lifestyle brands. EBITDAM expanded 193bp YoY to 17.9%. A nimble ABFRL was a welcome change (debt was down from Rs. 33.4bn in Jun-20 to Rs. 5.8bn in Feb- 21). We upgrade ABFRL to a Buy recommendation with a DCF-based TP of Rs. 200/sh, implying 14x FY23 EV/EBITDA, given 1. a stronger balance sheet (FY21 net debt/equity estimated at 0.2x), 2. stronger top-line/margin recovery and 3. ebbing working capital stress. (FY22/23 EBITDA estimate changes 8/2% resp).

3QFY21 highlights: Revenue declined 19.6% YoY to Rs. 20.6bn (standalone). Lifestyle brands recovered 79% (HSIE: 71%) underpinned by strong recovery in retail channel (92%). Wholesale channel remains in stress (declined 63.5%). Primary sales are expected to bounce back in 4Q. Secondary sales recovery stood at 70-80%. Pantaloons declined 25% (HSIE: - 30%). Other business grew 49% growth in 3Q. Gross margin recoup was sharper than expected led by 1. Lower Inventory provisioning, 2. Lower discounting levels and 3. Lifestyle brand's higher retail skew in 3Q. GM/EBITDAM expanded 30/193bp YoY to 52.3/17.9%. Cash release in 3Q stood at Rs. 5.88bn (Rs. 3.25bn came from inventory reduction). Total cost savings for 9MFY21 stood at Rs. 10.3bn. Company added 88/2 stores (net) in Lifestyle brands/Pantaloons resp (9MFY21) and intends to aggressively start store additions by FY22. The much-awaited deleveraging exercise in now near completion (courtesy Flipkart money + Rights issue). Net debt is likely to reduce to Rs. 2.5bn (ex-Sabyasaachi acquisition) by FY21.

Outlook: We are encouraged with ABFRL's top-line/margin recovery and more so by its receding leverage concerns. With its newfound nimbleness, we expect ABFRL to now focus on disciplined growth. Hence, we upgrade ABFRL to a BUY recommendation with a DCF-based TP of Rs. 200/sh (earlier Rs. 180/sh), implying 14x FY23 EV/EBITDA.

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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