Emkay Global Recommends Buying This Fashion & Retail Stock For Over 40% Returns

Strong Franchise, Robust expansion plans aided by fund raise

According to Emkay Global, the company's, top-line grew ~22%, led by 34% growth in Lifestyle and 13% growth in Pantaloons. Lifestyle growth was led by 71% growth in the wholesale channel, while physical retail/other channels delivered a healthy 25%/16% growth. In line with recent trends, Lifestyle EBOs saw strong traction with Rev/sqft ~15% higher than pre-Covid levels despite operational challenges in the first half of Q4. While store additions picked up in Pantaloons with 16 new additions, rev/sqft was still ~10% below pre-covid levels. However, Aditya Birla Fashion & Retail expects to get back to near pre-Covid levels in FY23. Compared to recent trends, Innerwear growth was slower at ~15% in Q4 and 33% in FY22. Ethnic business reported sales of Rs1bn (up 2.5x), with an annual run rate of Rs4bn. Going ahead, it expects store additions to pick up with ~400/80/70 additions expected in Lifestyle/Pantaloons/Ethnic segments in FY23E vs. 143/31 store additions for Lifestyle/Pantaloons in FY22. Capex is expected to be ~Rs7bn in FY23E for new store additions, back-end infra and digital capabilities. Aditya Birla Fashion & Retail had a net debt of Rs5bn as of FY22-end.

The lifestyle segment led margin gains

EBITDA margins improved ~260bps to 17%, led by a 570bps gain in Lifestyle and a ~230bps decline in Pantaloons. Strong SSG reflected in strong margin gains for lifestyle, while weaker SSG led to a margin decline in Pantaloons. Aditya Birla Fashion & Retail expects a pick-up in discretionary expenses and strong expansion to impact margins from ~19% in H2. "We remain conservative with 17-18% margin expectations over FY22-25E," the brokerage said.

Emkay Global Suggests Buy For A Target Price of Rs 360

"Strong recovery trends, aggressive expansion plans and an improving margin profile should drive healthy revenue/EBITDA CAGRs of 15%/28% over FY20-25E. RoIC (ex-goodwill) is expected to improve to ~30% by FY25. Retain Buy with a revised Target Price of Rs 360 (26x Jun'24E pre-IndAS116 EBITDA vs. 28x FY24E earlier). The reduction in multiple is due to 3M roll-over and higher WACC," Emkay Global has said.

About The Company - Aditya Birla Fashion & Retail Ltd.

Aditya Birla Fashion and Retail Ltd. (ABFRL) is a Lifestyle Brand and home to some of India's most iconic brands including Louis Philippe, Van Heusen, Allen Solly and Peter England - all market leaders within their segment. With a market cap of Rs 24,150 crore, the company is one of India's leading fashion & retail brands. ABFRL is a part of the Aditya Birla Group, a global conglomerate, in the league of Fortune 500. Anchored by an extraordinary force of over 140,000 employees, belonging to 100 nationalities, the Group is built on a strong foundation of stakeholder value creation. Today, over 50% of Group revenues flow from overseas operations that span 36 countries in North America, South America, Africa and Asia.