Hold Aditya Birla Fashion and Retail; target of Rs 225: Sharekhan

Sharekhan's research report on Aditya Birla Fashion and Retail

ABFRL posted yet another weak quarter impacted by slowdown in discretionary spends resulting low single digit growth in branded apparel category in Q1FY24. Revenues of Lifestyle brand grew by 5% while Pantaloons saw just 1% growth (SSSG declined by 8%). Consolidated EBIDTA margins stood at 9% in Q1 (standalone EBIDTA margins stood at 12%). With large investment in ethnic business and new acquired businesses, we expect recovery in the profitability to take time. Net debt is expected to be at Rs. 2,800 crore at FY2024-end post the acquisition of controlling stake in TCNS clothing. This will lead to an increase in the interest costs in the next two years.

Outlook

Stock has corrected by 41% from its high and is trading at 18x/14x its FY2024E/25E EV/EBITDA. In view of weak earning visibility in the near term, we downgrade our rating on the stock to Hold from Buy earlier with an unchanged PT of Rs. 225.