We expect this growth momentum to continue into H2 FY19.
Aditya Birla Fashion & Retail's Q3 FY19 consolidated revenue grew 23% to Rs 22.8 billion, ahead of our estimated Rs 20.9 billion.
The gross margin fell 346bps YoY to 49.9% hit by changes in the revenue mix (rising share of innerwear, Pantaloons and the other non-premium part of the portfolio). However, the EBITDA margin expanded 14bps to 7.6% on account of controlled rent, employee and other expenses.
Segment-wise, Pantaloons’ revenue grew ~28%; its EBITDA margin expanded 50bps to 9.2%. Revenue of Madura Lifestyle brands rose ~16%; the EBITDA margin contracted 10bps YoY to 11.6%.
During the quarter, ad-spends were higher in Madura Lifestyle brands (40% YoY) and Pantaloons (3x marketing investments) on account of the festival period and to drive higher sales. Pantaloons reported its highest ever SSSG, of 17%, driven by product improvement and strong brand enhancement. Madura Lifestyle reported its highest ever Q3 revenue, driven by 8% SSSG growth.
We expect this growth momentum to continue into H2 FY19, backed by strong SSSG growth and network expansion.
During the quarter, the company added 14 Pantaloons stores and 62 Madura Lifestyle Brand stores, taking the totals to respectively 302 and 1,959.
We raise our FY19E revenue growth for Madura Lifestyle brands to 11% (earlier 9.7%). We are optimistic about Pantaloons’ SSSG picking up as the newer stores will be included in calculations from Q1 FY20 as well.We expect overall revenue/EBITDA CAGRs of 12%/25% over FY18-21
The company’s diverse divisions lead us to value it on a sum-of-parts basis. Segment-wise, we assign 20x FY21e EV/EBITDA to its Madura Lifestyle brands, a premium to its peers on account of its mature brands with high brand equity, high RoCE and well-managed working capital.
We assign 12x FY21e to its high-growth, value-fashion business, Pantaloons. To the Fast Fashion and other businesses (innerwear, other premium brands) we assign 0.8x FY21e EV/sales.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.