Buy Mid Cap Aditya Birla Group Stock For 16% Gains, Target Price Rs 381: Edelweiss Wealth Research

Edelweiss Wealth Research has rated "buy" Aditya Birla Fashion & Retail Ltd. (ABFRL) in its recent report published on 05 November 2022. the brokerage suggests "buy" the stock with a target price of Rs 381 per share. Given the target price, the brokerage sees a potential upside of up to 16% from its current level.

ABFRL is Aditya Birla Group's mid-cap Fashion & Retail sector company. It has a market cap of Rs 30,889.80 crore. ABFRL registered another quarter of strong topline growth, led by network expansion across business segments and channels. Revenue came in at INR 3,075cr, 33% growth over the pre-COVID-19 level and 4% higher than the brokerage's estimates.

Stock Outlook & Returns

ABFRL's stock last traded at Rs 329.15 per share. On Friday, 04 November 2022, the stock fell 6.60% compared to its previous close of Rs 352.40 per share. The stock recently, on 1 November 2022, recorded its fresh 52 week high of Rs 359.50. Whereas, its 52-week low was recorded on 20 June 2022 at Rs 221.30. 

The stock has fallen 4.12% in 1 week, whereas, in 1 month it has fallen 1.3%. It has given 19.65% in the past 3 months. In a year, the stock has given 13.58% positive returns. In the past 3 years, it has given 54.02%. In the past 5 years, the stock has given multibagger returns of 114.29%.

Madura's segment growth trajectory continues

Madura continued its expansion trail, led by robust revenue growth across its brands. Madura's segment revenue increased 43% YoY (36% over the pre-COVID-19 level) to INR 1,987cr, mainly driven by strong growth in lifestyle brand revenue (45% YoY and 34% growth over the pre-COVID-19 level). Higher store openings (34 stores, taking the total to 2,561) coupled with higher footfalls and increased traction from the e-commerce channel led to robust growth in the lifestyle brand this quarter. Other businesses, including global brands, innerwear and athleisure, reported 31% YoY growth to INR 307cr.

The innerwear and athleisure segments achieved 27% YoY revenue growth as the business continued to expand its network and added 31 retail outlets this quarter to reach a total of 111 outlets (MBOs: ~30,400). The youth fashion segment, consisting of American Eagle and Forever 21, grew by 50% YoY. Ethnic businesses grew ~90% YoY, driven by network expansion and category extensions. However, margins were a miss this quarter as Madura's margins declined by 50bps YoY on account of higher expenses, whereas Ethnic wear segment posted EBITDA loss of INR 40cr on account of aggressive brand expansion and advertisement spends.

"Going forward, we expect Madura to 28% revenue CAGR over FY22-24E. However, we expect operating margins to remain at ~15% on account of higher media spends and normalization of other expenses," the brokerage has said.

Pantaloons' margins affected by EOSS; expansion continues

Pantaloons grew 64% YoY and 20% over the pre-COVID-19 levels to INR1,094cr, aided by opening up of the economy, higher EOSS (end of season sales) and continued demand from the E-commerce channel. However, the same resulted in a 270bps contraction in EBITDA margins to 16.1% due to higher discounting owing to EOSS and lower realization from E-commerce (a low-margin segment). ABFRL opened 21 Pantaloons stores in the quarter, taking its store count to 396, and plans to open another 50 new stores in H2FY23. With aggressive store expansion and increased traction from casual and ethnic wear, we expect Pantaloons to register CAGR of 34% revenue CAGR over FY22-24E, with 100bps improvement in operating margins to ~16% by FY24E.

Positive outlook; maintain BUY

ABFRL posted strong revenue growth across segments and continued to expand its footprint (106 brand stores and 947 MBOs in Q2FY23). "We expect this performance to continue in H2FY23 on account of strong festive/wedding season and aggressive store expansion. However, we expect margins to remain under pressure due to anticipated increased in advertisement spends and other overheads (owing to normalisation of operations)," the brokerage has said.

It added "With strong focus on store and brand expansion, we increased our revenue estimates by 7% for FY23E and FY24E but reduced our earnings estimates by 5% for FY24E considering the higher operating costs. We assigned a multiple of 4x sales for Lifestyle, 1x sales for other businesses and 10x EV/EBITDA for Pantaloons, leading to a revised target price of INR 381/share (previous TP: INR 398/share)."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.