Neutral Aditya Birla Lifestyle Brands Ltd for the Target Rs 105 by Motilal Oswal Financial Services Ltd
Steady 1Q; consistent double-digit growth and margin expansion key to re-rating
* ABLBL reported 11% YoY revenue growth (though weaker vs. ~16% YoY for Arvind Fashions), supported by robust ~19% YoY growth in Emerging brands. Lifestyle brands' revenue grew ~10% YoY, driven by 7% retail LTL and strong performance in E-com.
* Gross margin contracted ~155bp YoY to 61% (~135bp miss), due to adverse channel mix and higher inventory provisioning. However, it was largely offset by operating leverage on employee and rental costs, leading to ~17% YoY EBITDA growth and ~75bp YoY margin expansion to 15.1% (~55bp beat).
* Management continues to target 150-200 net store additions (~5-6% network growth), which, coupled with sustainable 7-8% retail LTL growth, should support early double-digit growth for ABLBL.
* We fine-tune our FY27-28 estimates and model a CAGR of 8%/10%/18% in revenue/EBITDA/adj. PAT over FY26-29.
* We reiterate our Neutral rating with a revised TP of INR105, premised on ~15x Sep’28E pre-Ind AS EV/EBITDA.
* Consistent double-digit revenue growth, along with improved profitability in emerging brands, remains the key catalyst for a potential re-rating.
Revenue in line; Lifestyle brands’ margin slightly better than our estimate
* Revenue at INR20.5b grew 11% YoY (in line), though it remained weaker than the ~16% YoY growth reported by Arvind Fashions.
* Lifestyle Brands grew 10% YoY, driven by 7% retail LTL growth and strong growth in the E-com channel.
* Emerging brands delivered 19% YoY growth, driven by robust growth in Reebok and Van Heusen Innerwear.
* The company’s presence expanded to 3,362 brand stores (~14 net store additions in 1Q).
* Gross profit rose ~8% YoY to INR12.5b (vs. our est. INR12.7b) as gross margin contracted ~155bp YoY to 61% (~135bp miss).
* Other expenses rose ~8% YoY, while employee (up 6% YoY) and rental expenses (1% YoY) were contained and led to operating leverage.
* Reported EBITDA at INR3.1b grew ~17% YoY (vs. our est. INR2.96b) as EBITDA margin expanded ~75bp YoY to 15.1% (55bp beat).
* Lifestyle Brands’ EBITDA grew 12% YoY to INR3.2b, with margin improving 40bp YoY (50bp beat) to 18.5%.
* Emerging brands' EBITDA rose to INR140m (vs. INR40m YoY), with margins expanding ~240bp YoY to 4.2% (~80bp miss).
* Depreciation grew 18% YoY, while interest cost declined ~2% YoY. Other income also declined ~18% YoY.
* Reported PAT at INR290m grew ~21% YoY but came in ~12% below our estimates due to higher depreciation, finance costs, and lower other income.
Valuation and view
* ABLBL combines scaled and highly profitable lifestyle brands with a portfolio of currently sub-scale but high-potential emerging brands, offering a balanced mix of steady cash generation with levers for growth and margin expansion.
* We expect an ~8% CAGR in overall revenue over FY26-29, driven by ~165 net annual store additions, mid-single-digit LTL, and scale-up of emerging brands.
* We build in a CAGR of ~10%/18% in overall reported EBITDA/adj. PAT, aided by ~85bp blended reported EBITDA margin expansion over FY26-29. Improved profitability of emerging brands remains the key driver of margin expansion.
* We expect ABLBL to generate a cumulative OCF of ~INR17b and FCF of ~INR8b over FY26-29, which should provide headroom for increasing shareholder payouts while deleveraging the balance sheet (INR7.3b net debt in FY26).
* We reiterate our Neutral rating with a revised TP of INR105 (earlier INR110), based on 15x Sep’28E pre-Ind AS EV/EBITDA.
* Consistent double-digit revenue growth, along with improved profitability in emerging brands, remains the key catalyst for a potential re-rating.
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