ICICI Direct is bullish on Aditya Birla Fashion and Retail has recommended buy rating on the stock with a target price of Rs 250 in its research report dated December 26, 2018.
ICICI Direct's research report on Aditya Birla Fashion and Retail
We recently met the management of Aditya Birla Fashion & Retail (ABFRL). The key takeaways are: -i) festive period sales have been strong across all formats, ii) anticipates Pantaloons to report healthier revenue growth in H2FY19 owing to a shift in the festive season, iii) lifestyle brands are expected to maintain healthy growth momentum with early double digit SSSG in FY19E, iv) innerwear business growing at a rapid pace and currently has ~10,000 point of sales and v) would go slow in expansion plans for fast fashion business with aim to reduce EBITDA loss.
ABFRL’s key business segments - lifestyle brands and Pantaloons - have witnessed enhancement in revenue growth trajectory with upgradation in margin profile over the last two years. Focus on profitable growth through cost optimisation, constant improvement in product portfolio and increased share of private labels would enable the company to deliver superior return ratios, going forward (expect RoCE to improve from 8.5% in FY18 to 15.7% in FY21E). We roll over our estimates to FY21E and expect revenue and EBITDA to grow at a CAGR of 14% and 23%, respectively, in FY18-21E. Furthermore, with healthy free cash flow generation, we expect interest coverage and debt/equity ratio to improve from 1.3x and 1.7x in FY18 to 3.1x and 0.8x, respectively, in FY21E. We revise our target price to Rs 250, valuing the stock at FY21E 2.0x EV/sales.
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