Buy Aditya Birla Fashion and Retail; target of Rs 250: Sharekhan

Sharekhan's research report on Aditya Birla Fashion and Retail

Aditya Birla Fashion and Retail (ABFRL) to acquire TCNS Clothing (TCNS), owner of ethnic brands, including W, Aurelia, Wishful, Folksong and Elleven for Rs. 2,891 crore (2.4x its FY23E EV/Sales). The acquired portfolio with ethnic business to scale-up to Rs. 5,000 crore by FY27 (50% will be contributed by TCNS brands); Management expects EBIDTA margins of TCNS to recover to double digits in two years from current single digit (pre-Ind AS). Acquisition will be done through mix of debt (Rs. 700-800 crore) and GIC’s second tranche of infusion of Rs. 1,425 crore. Management expects acquisition to be marginally EPS accretive from FY25 against the street’s assumption of 6-8% earnings dilution.

Outlook

After the recent correction, the stock trades at an attractive valuation of 12x/10x its FY24E/25E EV/EBIDTA. As overhang around the acquisition is over and management is providing clarity on earnings prospects, the downside risk is limited. We maintain our Buy rating with revised PT of Rs. 250.

For all recommendations report, click here