Aditya Birla Fashion and Retail - Accelerating investments despite disruptions - ICICI Securities

Aditya Birla Fashion and Retail's (ABFRL) Q4FY21 consolidated revenue decline of 1% YoY and (post Ind-AS 116) EBITDA growth of 51% YoY on a low base was broadly in line with consensus estimates. While only ~15% of the network stores are currently operational owing to covid resurgence and lockdowns, management expects gradual demand recovery from Q2FY22-end. Despite current disruptions, ABFRL intends to invest aggressively in expanding its distribution network and strengthening e-commerce across businesses and ramp up the ethnic wear business to achieve scale in the medium term. Factoring-in the impact of recent lockdowns, we reduce our FY22E EBITDA though we maintain it for FY23E. Maintain BUY with unchanged DCF-based target price of Rs232/sh. Key risk: slower recovery in discretionary spends, and increasing online competition.

- Standalone revenues declined 2% YoY at Rs17.8bn. Strong recovery in Q4FY21 was halted by resurgence of covid cases from mid-Mar'21 leading to localised shutdowns. Revenues from lifestyle brands stood at Rs10bn, down 6% YoY. Retail stores delivered growth of 8% YoY (-1.7% LTL). Wholesale channel continued to be impacted due to covid with revenues down 40% YoY, whereas the 'others' segment (including e-commerce) grew 30% YoY. ABFRL added 383 new stores during FY21 (~88% franchisee-led) and closed 247 stores taking the total store count to 2,379 with total area of 3mnsqft. Company plans to add >400 stores in FY22.

- Revenues from Pantaloons stood at Rs5.9bn, down 5% YoY (LTL -10.6%). Revenue from smaller towns grew YoY whereas that from metro and tier-1 cities continued to lag. High street stores recovered faster than malls. E-commerce sales grew 3x YoY on low base. ABFRL opened 19 stores and closed 15 unviable stores during FY21 taking the total store count to 346 with coverage of 4.46mnsqft. Company plans to add >50 Pantaloons store n FY22.

- Net debt declined by Rs18.6bn to Rs6.5bn in FY21 led by Rs7.5bn rights issue and Rs15bn preferential issue to Flipkart. ABFRL incurred Rs1.4bn capex and Rs6bn (our estimate) operating loss including ~Rs3bn interest costs; while Rs5.2bn was utilised for acquisitions. Working capital release of Rs8.5bn in FY21 was led by Rs6bn reduction in inventories YoY, although trade payables increased by Rs6.4bn QoQ and Rs0.7bn YoY. Net debt may inch up in FY22 owing to higher working capital needs and also due to likely operating losses in H1FY22, in our view.

- Gross margin expanded 200bps YoY to 53% while post Ind-AS 116 EBITDA margin expanded 480bps YoY owing to better product mix, tighter markdown, cost controls and also aided by low base YoY. Company achieved substantial fixed-cost savings of Rs12.2bn YoY in FY21 led by savings of Rs4.7bn in rent expenses, Rs2.03bn in employee costs & Rs5.4bn in other expenses (including ad spends).

- Revenues from active athleisure innerwear in Q4FY21 grew 56% YoY (up 3% YoY in FY21). During the year, ecommerce revenue share doubled to 15%. Company continued to expand in the trade channel (>5500 new outlets in FY21).

- Ethnic portfolio revenues increased by 165% YoY aided by acquisitions. Jaypore's revenues grew 72% YoY led by 61% YoY growth in ecommerce revenues. It opened its first store during Q4FY21 with 10 stores planned to be added in FY22. Shantanu & Nikhil's revenues grew 12% YoY during Q4FY21. It opened three stores in Q4FY21 and is currently in the process of opening two stores soon. ABFRL closed the investment for 51% stake purchase in Sabyasachi brand during Q4FY21. It also closed investment for strategic partnership with the brand Tarun Tahiliani through 33.5% in existing couture and 80% stake in a new entity to create a new brand in affordable premium men's ethnic wear. The brand is expected to be launched by the festive season of FY22.

- Within the lifestyle brands business, loyal customer base improved 22.4% YoY at 22mn customers with 51% of revenues coming from loyal customers. PE Red stores crossed 300+ milestone in Q4FY21. Company added more than 100 stores in Q4FY21. More than 1,000 stores are omni-enabled. The share of casual product portfolio in overall sales increased from 50% in FY19 to 55% in FY21. E-commerce share on lower sales rose from 7% to 15%.

- ABFRL witnessed strong recovery in Q3/Q4FY21 on account of weddings and renewed customer optimism. Resurgence of covid cases from mid-Mar'21 leading to lockdowns in different parts of the country including Maharashtra, Delhi, Karnataka, Tamil Nadu, etc. impacted footfall in stores towards the end of Q4FY21. Apr'21 and May'21 also remained severely impacted. Company is hopeful of business returning to normalcy by Q2FY22-end. Of the total network of 3,212 stores, 419 stores were operational currently. Final call of Rs27.5/sh for Rs2.5bn rights issue has been made with 1st Jul'21 as the record date.

Shares of Aditya Birla Fashion and Retail Ltd was last trading in BSE at Rs.195.15 as compared to the previous close of Rs. 191.05. The total number of shares traded during the day was 328774 in over 3704 trades.

The stock hit an intraday high of Rs. 196.8 and intraday low of 181.7. The net turnover during the day was Rs. 63063105.

Source : Equity Bulls

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