IGI Logo

Festive fervour aids strong operational recovery

ABFRL reported a strong QoQ recovery aided by festive demand and wedding season. Overall revenue recovery reached 80% in Q3FY21 vs. 45% in Q2FY21. Revenue for Q3FY21 was at | 2059 crore (down 20% YoY). Gross margins for the quarter stayed constant YoY at 52.3% on the back of tighter markdown management and better product offerings. Sharp rationalisation of fixed costs (| 157 crore cost savings in Q3FY21) led to profitability nearly reaching pre-Covid levels. EBITDA (post Ind-AS 116) was at | 368.5 crore (down 10% YoY) vs. EBITDA loss of | 1.7 crore in Q2FY21. Due to debt reduction, finance cost for Q3FY21 fell 28% QoQ to | 109.5 crore. Hence, PBT was at | 88.8 crore (down 9% YoY) vs. PBT loss of | 242 crore in Q2FY21. Inventory reduction (~| 325 crore in Q3FY21) translated to ABFRL posting healthy operating cashflow worth | 588 crore. In Q3FY21, it raised a second tranche of rights issue of ~| 250 crore (| 750 crore raised of | 1000 crore right issue) & also completed fund raise from Flipkart of | 1500 crore.

Strong retail channel recovery aids Lifestyle brands revenues…

Lifestyle brands (50% of sales) witnessed a heathy recovery with sales declining 21% YoY to | 1026 crore. Retail channel recorded impressive recovery rate of ~92% driven by healthy net store addition pace (opened 88 stores in YTDFY21) and LTL growth of (-) 17%. Owing to excess inventory in MBO channels, primary sales to wholesale channels continued to be laggards with recovery rate of mere 37% (secondary sales recovery rate: 70- 80%). The business model of 12 season inventory cycle has assisted in smoothly aligning its inventory with the current demand scenario (category lines like work from home, athleisure). Revenue from other business (that includes innerwear & athleisure) de-grew 7% YoY to | 220 crore, with innerwear and athleisure wear recording sharp sales growth of 24% YoY.

Lower discounting, cost control aids Pantaloons margin profile

Revenue from Pantaloons declined 25% YoY to | 811 crore (LTL: (-) 27%) with malls business down 30% and high street stores down 18%. Despite sales being below pre-Covid, Pantaloons reported one of its highest ever EBITDA margins of ~13% (up 300 bps YoY) on the back of lower discounting and tight leash on operating overheads. On a gross basis, it added seven new Pantaloons stores in Q3FY21 taking total store count to 344. In a bid to enhance the share of private label brands the company is diversifying its portfolio to categories such as bags, sarees and home accessories.

Valuation & Outlook

The company rationalised fixed costs leading to savings worth | 1029 crore in YTDFY21. Through capital infusion (| 1750 crore) and better working capital management, ABFRL has pared its debt from | 3181 crore in Q2FY21 to | 580 crore. The management is aiming to reduce debt to | 250 crore by Q4FY21E (excluding capital outlay for acquisition of 51% in Sabyasachi brand: | 398 crore). Factoring the latest acquisition, we expect ABFRL to exit FY21E with debt levels of | 860 crore. Controlled working capital cycle, recovery in profitability and steady FCF generation would result in debt/EBITDA ratio declining to 0.6x by FY23E (6.0x in FY20). We reiterate our BUY rating with unchanged target price of | 210 (2.0x EV/sales FY23E).

To Read Complete Report & Disclaimer Click Here

For More ICICI Direct Disclaimer https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer