IGI Logo

Aditya Birla Fashion and Retail Limited (ABFRL), affiliated with the prominent Indian conglomerate The Aditya Birla Group, faced a challenging quarter with a 38% YoY decline in EBITDA, resulting in negative operating leverage, while PAT plummeted by 271% YoY due to lackluster performance in the Pantaloons segment and sustained investments in TMRW and ethnic ventures. Of greater concern is the escalating debt and elevated inventory levels (net debt: INR 21 billion, projected to reach INR 28 billion by the close of FY24) amidst a deceleration in demand. The management's emphasis on continued strain on discretionary spending, absence of significant recovery, compounded by

Q1FY2024 Results:

Despite an 11.2% YoY revenue growth, the company experienced contraction in both gross margin (GM) and EBITDAM due to sluggish demand, ongoing investments, and heightened marketing expenditures. With a significant net debt of Rs 2,100 Cr as of June 2023, coupled with elevated inventory, concerns about the company's financial stability are pronounced. This financial position can potentially lead to precarious situations. Consequently, the company reported a net loss of INR 1.6 billion (against an estimated loss of INR 1.1 billion), attributed to negative operating leverage resulting from subdued Pantaloons business sales and persistent investments in TMRW and Ethnic segments. The management underscores the continued pressure on discretionary spending, lacking substantial recovery, although it anticipates a demand resurgence in H2FY24, primarily driven by robust festive and wedding seasons.

New investments:

The management's approach to revitalizing the product portfolio includes introducing new launches and pursuing acquisitions, complemented by the establishment of a direct-to-consumer (D2C) online platform, all aimed at generating long-term value. As part of this revitalization effort, ABFRL successfully integrated Reebok, a segment that has reached a breakeven point and is anticipated to become profitable by FY24. Moreover, ABFRL has directed investments into several emerging ventures, with the majority of them currently operating at a loss or in the process of stabilization.

Outlook and Valuation

ABFRL's bold expansion strategy, coupled with the increasing debt load and elevated inventory needs, render its balance sheet and return metrics vulnerable and strained, with potential risks in case of minor missteps. However, the company's efforts towards revitalization and the implementation of direct-toconsumer (D2C) online avenues hold promise as potential growth catalysts over the long run. In consideration of these factors, we propose a HOLD recommendation for ABFRL, with a target of Rs. 200/

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

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