IGI Logo

Strong performances across segments; maintaining a Buy

ABFRL’s Q2 FY23 revenue grew a healthy, 50% y/y, led by network and new category expansion, end-of-season sales, festival season and e-comm. Its EBITDA margin was squeezed by higher ad-spends and investments in newer businesses like ethnic. Net debt was lower at Rs2.4bn (Rs5bn at endFY22), benefitting from the first tranche of its fund raise. Net-debt reduction, cash generation and maintaining working capital are positives. We raise our revenue estimates slightly to factor in higher growth ahead. Our FY23e/FY24e EBITDA are ~13%/5% lower as we expect investment to be higher. We factor in ~29%/33% revenue/EBITDA CAGRs over FY22- 25. We introduce FY25e, retaining our Buy rating with a TP of Rs421 (Rs358 earlier) on ~17x FY25e EV/EBITDA (~17x FY24x EV/EBITDA earlier).

Highest quarterly revenue. Q2 FY23 consolidated revenue grew ~50% y/y to Rs30.7bn. The gross margin expanded ~166bps y/y to 55.1%. EBITDA grew ~27% y/y to Rs3.9bn led by strong performances across segments. The EBITDA margin contracted ~236bps y/y to 12.9%. PAT grew ~6x y/y to Rs294m. Madura Lifestyle brands’ revenue grew ~45% y/y to Rs16.8bn; its EBITDA margin expanded ~80bps y/y to 17%. Pantaloons’ revenue grew ~65% y/y to Rs10.9bn; its EBITDA margin shrank ~270bps y/y to 16.1%. Ethnic revenue stood higher ~88% y/y at Rs1.1bn and its EBITDA loss at Rs400m (positive Rs10m in Q2FY22). Net working capital was 17 days (12 at end-FY22). OCF was Rs4.9bn (negative Rs305m in H1 FY22) and FCF, Rs1.9bn (negative Rs1,362m in H1 FY22).

Investments to continue over the next few quarters. Brand building, network expansion and new businesses will continue. As the company is seeing good revenue growth, it will have higher ad-spends for the next few quarters. It plans to add 60-70 stores for Pantaloons. In its ethnic division it will invest in brand building and network expansion. It plans to end FY23 with 65-70 Tasva stores, from 21 now.

Valuation. We retain our Buy rating with a TP of Rs421 based on ~17x FY25e EV/EBITDA. Risk: Keen competition cutting revenue growth.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  https://www.rathi.com/LeadGenerate/Static/disclaimer.aspx
SEBI Registration No.: INZ000170832

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