Maintain BUY on Aditya Birla Fashion and Retail - Not out of the woods yet, but on a better footing - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

ABFRL delivered an on-par topline performance (recovery hit 98%). Madura/Pantaloons recovered 99/95% resp. (HSIE: 98/93%). Gross margin recoup (53.3%) was sharper than expected, led by (1) lower inventory provisioning and discounting levels and (2) lower wholesale mix in Lifestyle brands' sales. EBITDAM expanded 582bp YoY to 14.4% (HSIE: 10.6%). A nimbler ABFRL is a welcome change and should help the retailer navigate the second wave better (gross debt is down from INR 28bn in FY20 to INR 11.2bn in FY21, while net debt/equity is down from 2.3x to 0.4x YoY). We maintain our BUY rating on ABFRL with a revised SOTP-based TP of INR 225/sh (earlier 200/sh), implying 14x FY23 EV/EBITDA (we have assigned 14x FY 23 EV/EBITDA to Madura/Pantaloons each + 1.5x FY23 sales to other businesses).

4QFY21 highlights: Revenue declined 2% YoY to Rs. 17.8bn (standalone). Lifestyle brands recovered 94% (in-line) underpinned by strong recovery in retail channel (8% growth YoY, SSSG: -1.7%). Wholesale channel remains in stress (declined 40%). E-commerce continues to be the growth anchor (up 30% YoY). Pantaloons declined 5% YoY (in-line, SSSG: -10.7%). Other business surprised positively (grew 85% YoY to INR 2.14bn; HSIE: 2bn). Gross margin recoup was sharper than expected led by (1) lower inventory provisioning and discounting levels and (2) lower wholesale mix in Lifestyle brands' sales. GM/EBITDAM expanded 205/582bp YoY to 53.3/14.4% resp. WC cash release in FY21 stood at Rs. 7.85bn. Total cost savings for FY21 stood at Rs. 12.2bn. Lifestyle brands/Pantaloons/Other businesses' EBITDAM stood at 17.5/14.4/5.6% resp. Gross debt has been meaningfully pared down from INR 28bn in FY20 to INR 11.2bn in FY21 (net debt/equity down from 2.3x to 0.4x YoY).

Outlook: We are encouraged with ABFRL's topline/margin recovery and more so by its receding leverage concerns. With its newfound nimbleness, we expect ABFRL to now focus on disciplined growth. We maintain our BUY recommendation on ABFRL with a revised SOTP-based TP of INR 225/sh (earlier 200/sh), implying 14x FY23 EV/EBITDA (we have assigned 14x FY 23 EV/EBITDA to Madura/Pantaloons each + 1.5x FY23 sales to other businesses). Note FY22 EBITDA estimate has been cut by 31% to factor in the demand impact from the second wave; however, FY23 estimates remain largely unchanged.

Shares of Aditya Birla Fashion and Retail Ltd was last trading in BSE at Rs.197.6 as compared to the previous close of Rs. 195.15. The total number of shares traded during the day was 244523 in over 3369 trades.

The stock hit an intraday high of Rs. 200 and intraday low of 193.85. The net turnover during the day was Rs. 48130850.

Source : Equity Bulls

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