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Published on 10/11/2021 10:34:08 AM | Source: Yes Securities Ltd

Update On Aditya Birla Fashion and Retail Ltd By Yes Securities

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Strong recovery across the board, bright outlook ahead

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ABFRL reported better than expected performance in 2Q with strong 90% recovery over Q2FY20 levels leading to margin expansion. The recovery was across the portfolio aided by easing of mobility restrictions and strong consumer demand which helped post positive operating profit and PAT. We believe ABFRL should register positive SSSG in Q3 amidst strong demand aided by ongoing festival season. Assuming no covid‐led disruption in H2FY22, ABFRL is set for aggressive expansion with its strategy of opening 100 Pantaloons per annum stores going forward. Company was also able to reduce debt levels however it can increase again given continued investments in ethnic wear, footprint expansion in both Madura and Pantaloons in addition to an increase in inventory levels. The stock has already run up on the back of strong recovery and market share gains. We believe stock can continue to outperform driven by improving outlook, aggressive expansion strategy, improving operating metrics and strong balance sheet with reduction in leverage.

 

* Topline growth – ABFRL registered better than expected recovery of 90% vs pre covid levels with revenue at Rs 2054cr. Vs Rs 1,028cr YoY. Lifestyle brands posted 92% recovery with revenue at Rs 1,156cr vs Rs531cr YoY. Pantaloons posted 73% recovery with revenue at Rs 665cr vs 369cr YoY. Other businesses including innerwear, ethnic posted strong growth over Q2FY20.

 

* Margin performance – EBITDA at Rs 313cr vs 164cr in Q2FY20 with 60bps margin expansion to 14.7% over the same period led by strong recovery in sales coupled with tight control on costs.

 

* Debt reduction – Debt reduced from Rs 1,200crs in Q1FY22 to Rs 873crs. down to 450crs as of 8 November with strong cash flows. Debt is expected to be rangebound in FY22.

 

* Lifestyle brands – Revenue grew 118% yoy with retail channel revenue up 25% yoy, wholesale sales up 258% however below Q2FY20 levels, e‐Com channel revenue doubled, EBITDA margins of 16.3% vs 12.6% in Q2FY20; focus on casualwear (55% of revenue), e‐com acceleration, product innovation, added 54 stores in 2Q. increased share of casualwear, launch of Louis casualwear brand, Peter England entering kidswear space (12% Of overall apparel market), digital investments continue, own website sales growth of 2.5x, ecommerce revenue almost doubled, omni‐channel coverage expanded to more than 1000 stores, offline expansion continued with 140 store additions, strong growth in PE Red with 36 store additions in 1H, Allen Solly Prime added 18 stores. 85% of the business is franchise led  business.

 

* Pantaloons – Revenue up 80% yoy with 73% recovery over Q2FY20 impacted by 58% revenue coming from malls and ongoing renovation in 6 large stores, EBITDA growth of 76% with margin reaching 18.5% vs 19.2% YoT, addition of e‐ commerce specific merchandise helped, revamped website and increased omni presence to 250 stores, e‐com sustained growth with 2x growth in omni channel. Added 7 new stores and relaunched 6 stores, added 12 stores in October and target 60 stores in FY22 and target 100 stores pa over next couple of years; focus on increasing share of private labels with launch of new labels in premium Athleisure and premium ethnic in Q2. 20% share of franchise business, will increase to 25‐30% in medium term.

 

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