Hold Aditya Birla Fashion and Retail; target of Rs 215: Emkay Global Financial

Emkay Global Financial's research report on Aditya Birla Fashion and Retail

ABFRL’s Q1 EBITDA was 8-12% short of expectations, primarily on account of weaker margin in Pantaloons/Innerwear. We believe the overall weakness in the value-segment (Pantaloons) and the wedding/athleisure-related slowdown in the premium-end (Madura/Ethnic) drove a low 5-6% organic growth in Q1, while Reebok/D2C consolidation led to the balance 5-6% growth. Positives were return of wholesale growth/margin in Lifestyle and profitable outlook for Reebok, while negatives were persistent weakness in Pantaloons and delayed breakeven for Innerwear. Mgmt’s curtailed store-adds outlook was maintained for Pantaloons, while Reebok/Tasva are expected to see another year of healthy additions. Net debt is expected to double in FY24 (to Rs28bn), led by weak margin in FY24, Rs7bn capex, rise in WC and loss-funding in Ethnic/D2C.

Outlook

The impending TCNS acquisition will be funded by the likely GIC infusion. We mostly retain our EBITDA est. and Hold rating with TP of Rs215/sh.