Reduce Aditya Birla Fashion and Retail; target of Rs 230: Emkay Global Financial

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

ABFRL’s board has approved the demerger of its Madura business into a new entity – ABLBL, upon the requisite regulatory approvals over the next 9-12 months. In our view, this move should unlock value through better capital allocation and improved investor interest for the two businesses individually. Post de-merger, ABFRL plans to raise Rs25bn in the remnant entity, to support growth/debt reduction, while new entity ABLBL should generate healthy cash flows. Debt allocation of Rs10bn to ABLBL (33% of overall debt) is in line with its asset mix and regulatory conditions. ABLBL has a strong track-record of delivering low-teens earnings CAGR along with a healthy return profile of 25- 30%, and the demerger has potential to drive a ~15% re-rating. But remaining businesses (Value Retail + Ethnic + D2C + Luxury) will need investments in the near term.

Outlook

We remain conservative and retain REDUCE on ABFRL; we will watch for margin gains in the remnant entity before turning constructive on the stock.