Shares of Aditya Birla Fashion and Retail Ltd (ABFRL) fell more than 5 percent on November 26 on the National Stock Exchange (NSE) when the broader market was weak as well. This means that the stock is now down around 15 percent from its 52-week high of Rs 310 a share seen on November 10 on the NSE.
Be that as it may, ABFRL is well positioned to benefit from some factors, going ahead. For one, the anticipated recovery as we continue to move towards normalcy after the easing of the second Covid wave restrictions and, thereby, better demand conditions would help boost the company’s sales. In the near term, some tailwinds from strong festival season sales can also be expected.
Further, store additions and newer consumer segments are likely to support growth over the coming quarters. “Pick-up in store additions from H2 and new categories, mainly ethnic, offer strong growth visibility. ABFRL’s entry into ethnic-wear, accounting for about 30 percent of the industry, boosts the total addressable market significantly. Its faster scale-up can offer potential upsides,” said analysts from Emkay Global Financial Services in a report on November 25.
In Q2FY22, the company saw a decent pace of recovery with easing mobility restrictions. ABFRL’s consolidated revenue doubled year-on-year to Rs 2,054 crore. This meant revenue recovery stood at about 90 percent of Q2FY20, which was a pre-pandemic quarter. In Q2FY22, the recovery in lifestyle brands under which several of its clothing labels are grouped stood at around 92 percent vis-à-vis Q2FY20, whereas the recovery in its value-fashion offering Pantaloons brand lagged at 73 percent of pre-Covid level. Pantaloons’ performance was relatively weaker owing to a larger share of mall stores that had prolonged restrictions.
Overall, ABFRL managed to eke out a profit after tax of Rs 5 crore in Q2FY22. Even so, for the half-year ended September, the company was in deficit, owing to a huge loss in the June quarter.
“The company had an operational cash-burn of about Rs 300 crore during 1H which coupled with capex, finance costs, etc., led to a total cash outflow of about Rs 500-550 crore over the past 6M,” said analysts from JM Financial Institutional Securities Ltd in a report on November 3.
ABFRL’s consolidated net debt rose to Rs 873 crore at September end from Rs 530 crore at March end. “As the festive draws to a close the net debt has further reduced and as on today, the debt is approximately Rs 450 crore,” said the company in its September quarter earnings call.While an improving balance sheet is positive, it goes without saying that a potential third Covid wave that could hit the country remains a threat to recovery. Nevertheless, the recent drop in the share price makes valuations look relatively attractive to that extent. “Now that business is mostly back to normal, intrinsic margin ramp-up and cashflow generation would be key to watch here onwards,” said JM Financial analysts.