Buy Aditya Birla Fashion and Retail Ltd For Target Rs. 225 - ICICI Direct
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Better placed owing to strengthened b/s…
ABFRL witnessed a healthy recovery in the most of Q4FY21 on the back of pent-up demand. However a resurgence of the second wave of Covid-19 in the later part of March 2021 negatively impacted customer footfalls and decelerated the pace of growth. Revenue for Q4Y21 (standalone) de-grew marginally by 1.9% YoY to | 1783.6 crore.
Adjusting for the base effect, recovery rate was at ~85% in Q4FY21. Better product mix and tighter markdown management led gross margins to improve ~200 bps YoY to 53.3%. Sustained rationalisation of fixed overheads (employee and rental expenses down 20% and 18% YoY, respectively) resulted in ABFRL reporting EBITDA (post Ind-AS 116) of | 257 crore (up 65% YoY). At the PBT level, the company narrowed down its losses from | 178 crore in Q4FY20 to | 89.4 crore (I-direct estimate: loss of | 75 crore). ABFRL, during the year, received equity infusion worth | 2250 crore (rights issue, preferential issue), which was mainly utilised towards significantly retiring debt in FY21.
Retail channel propels performance of lifestyle brands
Revenue of lifestyle brands de-grew 6% YoY to | 1003 crore. Retail channel sales (49% of lifestyle brands segment) posted industry leading performance with revenue growth of 8% YoY (SSSG: -2%). E-commerce channels also sustained healthy trajectory with sales doubling YoY. Owing to excess inventory in MBO channels, primary sales to wholesale channels continued to be laggards with recovery rate of mere 60%.
Despite being a dominant player in formal category (most impacted category in FY21) implementation of business model to 12 season inventory cycle has assisted in smoothly aligning its inventory with the current demand scenario (revenue for casual category enhanced from 50% in FY19 to 55% in FY21). Also, segment continued to see healthy store addition pace with ~126 new stores added (net basis, franchisee route) in FY21 (total 2379 stores).
Cost restricting measures undertaken for Pantaloons
Revenue from Pantaloons division fell 3% YoY to | 597 crore (SSSG: - 10.6%), below our estimate of | 651 crore. Smaller towns saw positive growth whereas metro cities continued to recover at slower pace. Despite subdued revenues, significant cost reduction initiatives translated into EBITDA margins expanding by 560 bps YoY to 14.5% in Q4FY21 (post-Ind AS 116). While store addition pace for Pantaloons stays muted for FY21 (total 346 stores), ABFRL has aggressive store addition plans for FY22E with target of 60 new stores. We model in ~100 store addition in FY22-23E.
Valuation & Outlook
The company, through better working capital management, released ~| 785 crore in FY21. Coupled with equity infusion, ABFRL has significantly reduced its net debt from ~| 2500 crore in FY20 to | 654 crore in FY21E. Factoring in the near term headwinds, we revise our revenue estimates downwards by 15%, 4%, respectively in FY22-23E. We believe ABFRL with lighter balance sheet and strong bouquet of brands is well placed to accelerate the pace of store addition and revenue growth, going forward. We reiterate our BUY rating with unchanged target price of | 225 (2.1x EV/sales FY23E).
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