IGI Logo

Madura brands continue resilient performance; maintaining a Buy

Slightly above our estimates, ABFRL’s Q3 revenue grew ~20% y/y. Its 12.1% EBITDA margin, though, was lower, hit by higher ad-spend and newer business investments. Its Madura Lifestyle brands’ resilient performance continued while Pantaloons and other businesses (innerwear, athleisure) dragged on overall profits. Ethnic growth was healthy with small profits (vs. a loss in Q2), driven by strong festival & wedding sales. Management says Madura brands’ profitable growth will continue. Faced with demand issues, Pantaloons’ performance was dull; investments will continue in Ethnic and the D2C platform. We raise our FY23e/24e/25e revenue ~6%/1.5%/0.8%, and lower FY24e/25e EBITDA ~1%. We factor in ~18%/24% revenue/ EBITDA CAGRs over FY23-25. We retain our Buy, with a TP of Rs370 at ~15x FY25e EV/EBITDA (earlier Rs421 at ~17x FY25e EV/EBITDA).

Higher marketing spends dent margins. Q3 consolidated revenue grew ~20% y/y to Rs35.9bn. The 54.6% gross margin was flat y/y. EBITDA fell ~25% y/y to Rs4.4bn due to ~2.3x higher ad-spends y/y. The EBITDA margin shrank ~735bps y/y to 12.1%. PAT plunged ~94% y/y to Rs112m. Madura brands’ revenue grew ~18% y/y to Rs18.7bn; the EBITDA margin contracted ~485bps y/y to 16.9%. Pantaloons’ revenue grew ~9% y/y to Rs11.6bn; its EBITDA margin contracted ~580bps y/y to 14.5%. Other business revenue grew ~27% y/y to Rs3.6bn, its EBITDA loss was Rs230m (Rs180m profit a year ago). Ethnic revenue grew ~66% y/y to Rs1.9bn; its EBITDA margin was 4.2% (27.2%). Net debt was Rs3.4bn (Rs2.4bn in Q2).

Continued network expansion. The company added 245 branded stores in Q3. Madura brands continued to do well across categories, with product launches, store openings and significant marketing efforts. Inflation in tier-2, and -3 cities continued to hit Pantaloons, it being a value segment, despite net 10 stores added. Per management, the Ethnic segment would require more investments for network expansion and ad-spends. To re-build the brand Reebok will require investments. Ad-spends yearly will continue to be ~3.5-4% of sales

Valuation. We retain our Buy rating with a TP of Rs370 based on ~15x 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