This Fashion Stock Can Give Return Above 35%: Emkay Global Recommends

Emkay Global, a reputed brokerage firm suggested investors to buy the stocks of Aditya Birla Fashion & Retail for 35.50% return. The firm stated, "Strong recovery trends, aggressive expansion plans and improving margin profile should drive healthy revenue/EBITDA CAGRs of 14%/30% over FY20-24E."

Target Price

The Current Market Price (CMP) of Aditya Birla Fashion & Retail (ABFRL) is Rs. 295. Emkay Global has estimated a Target Price for the stock at Rs. 400. The stock is expected to offer a 35.50% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 295
Target Price	Rs. 400
1 year return	35.50%

Company performance

ABFRL's Q3 EBITDA was ~7%, largely led by ~150bps jump in gross margins. Q3 recovery highlights strong traction in core brands. ABFRL reported an 112% recovery in Q3, aided by a strong 120%+ recovery in Lifestyle and near-full recovery in Pantaloons. Within Lifestyle, Retail/Online channels continued to see strong traction, with 14%/20% CAGRs on a 2-year basis, while the wholesale channel picked up strongly with 95% recovery vs. 43% in Q2. However, store additions in Pantaloons were muted, with ~15 net additions in 9M, leading to ABFRL trimming its guidance by 25 stores for FY22E.

Comments by Emkay Global

Retaining the buy status, Emkay Global said, "ABFRL remains aggressive in entering new segments (ethnic/athleisure/D2C) through the inorganic route; it expects to build scale profitably in ethnic, and aims to become a major player in sportswear (Reebok). Margin improvement appears to be on track, and we expect ~400bps margin gains in FY22-24. In our view, operating leverage arising from strong growth, cost efficiencies and profitability turnaround in new segments should add more to margins beyond FY24E. ABFRL became net-debt free, aided by WC reduction, but this is not sustainable, in our view."

About the company

Aditya Birla Fashion and Retail Ltd. emerged after the consolidation of the branded apparel businesses of Aditya Birla Group comprising ABNL's Madura Fashion division and ABNL's subsidiaries Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL) in May 2015. 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. Today, over 50% of Group revenues flow from overseas operations that span 36 countries in North and South America, Africa and Asia.

(Also read:  Buy This Food And Beverages Stock For 17%, In Near Term: Emkay Global)

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.