Motilal Oswal's research report on Aditya Birla Fashion
To cater to the preferences of the digital, native, young customer, ABFRL is building a portfolio of ~30 D2C brands in the Lifestyle categories, including Beauty & Personal Care. ABFRL, with a host of brands across value chain and product categories, could grow it organically. Similar to the inroads in the ethnic wear segment, the idea is to take part in the growth stories of small brands by providing support (capital, supply chain, technology, and backend support) to improve their market offerings.
We value ABFRL on a SoTP basis to arrive at our TP of INR380, assigning an EV/EBITDA ratio of 15x to the Lifestyle brands, given the strong recovery and improved profitability; 15x to Pantaloons; and an EV/sales ratio of 1x to Other businesses on a FY24E basis. On a pre-Ind AS 116 EBITDA of INR12.5b for FY24E, this works out to be EV/EBITDA of ~29x. An improved balance sheet, healthy cash flows, and a strong overall performance remain key tailwinds for the stock. We reiterate our Buy rating on the stock.