Hold Aditya Birla Fashion and Retail; target of Rs 200: ICICI Securities

ICICI Securities research report on Aditya Birla Fashion and Retail

Revenue performance has been decent in Lifestyle brands at +5% YoY (-3% SSSG, 10% retail expansion) but uninspiring in Pantaloons at +1% YoY (-8% SSSG, 17% retail expansion). We liked efficiency driven EBITDA margin gains in the lifestyle brands segment (50% consol. revenue share). However, rest of the business segments reported substantial decline in profitability: 37% decline in Pantaloons EBITDA (negative operating leverage), while other business reported a loss. Volatile profitability in most of the emerging businesses (17% negative impact on consol. EBITDA) continues to be an area of concern. We liked revenue growth momentum (33%+) in ethnic portfolio. Impact of sector slowdown on ABFRL’s earnings is likely to be more pronounced given the leveraged balance sheet. Downgrade to HOLD.

Outlook

We cut our EBITDA estimates for FY24-25E by 11% and 7% respectively modelling revenue / EBITDA CAGR of 15 / 18 (%) over FY23-25E. We downgrade our rating to HOLD (from Add) with a DCF-based revised target price of INR 200 (was INR 210). Key downside increase in competitive intensity from online/offline players, slower than expected improvement in profitability of emerging business. Upside risk: sooner than expected recovery in the slowdown of discretionary consumption.