Buy Aditya Birla Fashion; target of Rs 305: Motilal Oswal

Motilal Oswal's research report on Aditya Birla Fashion

As per recent media articles, ABFRL is contemplating to acquire a majority stake in TCNS Clothing (women’s branded apparel retailer that owns brands such as W, Elleven and Aurelia) from promoters and PE investors (holding 61% stake). At the current market cap of INR29b, the investment could be to the tune of INR12b-15b for a 51% stake and could be funded through a combination of cash and share swap (without taking leverage of GIC’s INR14.5b equity infusion likely in the next 18 months). TCNS’s FY23E revenue/EBITDA of INR12.5b/INR1.6b (as per BBG estimates) represent only 10% of ABFRL’s consolidated revenue/EBITDA as TCNS has been witnessing weak earnings for the last few years. While TCNS has built a decent scale, it operates in a crowded women ethnic wear market that is catering to highly price- and design-conscious women consumers. Therefore, we believe that earnings revival at TCNS may be a challenging journey and that building the scale internally could be a good alternative for ABFRL.

Outlook

We value ABFRL on the SOTP basis, assigning EV/EBITDA of 15x to Lifestyle Brands, 10x to Pantaloons, and EV/sales of 1x to other businesses on FY25E. Subsequently, we arrive at a TP of INR305. We reiterate our Buy rating on the stock.

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