Neutral Aditya Birla Fashion; target of Rs 285: Motilal Oswal

Motilal Oswal's research report on Aditya Birla Fashion

Over the last few years, ABFRL has built its portfolio around five key consumption themes – western wear, ethnic wear, masstige and value retail, luxury retail, and digital brands – through organic and inorganic routes. The company is gearing up for the demerger of its legacy lifestyle brands and athleisure portfolio under ABLBL, while demerged ABFRL would focus on high-growth segments with a large TAM (value and masstige, ethnic wear, luxury retail and digital-first brands). The two entities will be separately listed and would attract specific investors based on their differing growth paths and capital structure profiles to unlock value. The demerger is likely to be completed in the next 2-3 months. The biggest takeaway was the management’s focus on 1) prioritizing organic growth in existing portfolio with no further M&A, 2) leveraging strong balance sheet with no additional fund raising (except for TMRW), and 3) driving profitable growth and improving return ratios.

Outlook

We reiterate our Neutral rating with a TP of INR285 as we await improvement in the demand environment and a profitable scale-up of ABFRL’s loss-making businesses before we turn more constructive.