Anand Rathi Gives A Buy Rating To This Aditya Birla Group Stock, Sees A Potential Upside Of 28.14%

Anand Rathi suggests investors buy shares of Aditya Birla Fashion and Retail because it believes that the stock price can rally further by approximately 28.14%. Recently the lifestyle and retail firm has proposed to acquire 51% of TCNS for Rs 16.5 billion, through an open offer and promoters' stake through an SPA. It would then take up 49% through a share swap. With this, Aditya Birla Fashion and Retail ethnic range are complete, and it can now focus on growing its brands.

The company has a track record of building large brands; its lifestyle category continues to shine. However, Pantaloons' lagging performance and huge investments in newer initiatives pose challenges, Anand Rathi highlighted in its research note.

In the past, Aditya Birla Fashion and Retail raised Rs 22.5 billion through a rights issue and preferential allotment that led to a ~79% decline in its net debt, from Rs 25.1 billion in FY20 to Rs 5.3 billion in FY21. This equity infusion also helped raise funds to enter partnerships with Sabyasachi and Tarun Tahiliani and helped provide for the cash burn during Covid-19.

While FY22 the company raised Rs 22 billion in May 22 by issuing 10.2 million shares under preferential allotment and 65.8 million warrants to GIC, post this the promoters' stake reduced to 51.9% (from 56.4% in Mar'22) and GIC now has a ~7.5% equity stake worth Rs 7.7 billion of this transaction has already been infused while the remaining investment (Rs14.25 billion) is due to be received by Aditya Birla Fashion and Retail in Q4 FY24.

In 2018 Aditya Birla Fashion and Retail identified ethnic wear as a key category in which it wanted to establish itself. Ethnic wear constitutes ~30% of the Indian apparel market and the company had no presence in it except through Pantaloons. It has since acquired or partnered with ethnic brands and expanded organically to cover the ethnic category.

Through the TCNS acquisition, the company's women's category will grow as the latter's core Madura lifestyle brands have largely been men's-wear dominant. Its ethnic wear sales were Rs 3.1 billion / Rs 4 billion in FY22/9M FY23, constituting 3.8%/4.2% of the total revenue. The EBITDA margin was 9.3% in FY22 (a negative 7% in 9M FY23), boosted by more investments in network expansion and advertising expenditure.

The brokerage revised its estimates, considering the current slowdown in retail. "The prevailing overall retail market slowdown impels us to reduce our FY24e/FY25e revenue by ~6% each, and EBITDA ~7%/9%. Our FY24e/FY25e EBITDA margins are now 13.5%/14.2%, down 24bps /34bps from our earlier estimates. The lower EBITDA margins compel us to reduce our FY24e/FY25e EPS ~27%/23%."

Anand Rathi values the company at a lower target multiple. We ascribe a lower target multiple of ~12x FY25e EV/EBITDA (~15x earlier) to factor in the slowdown and uncertainty regarding the recent acquisitions. We retain our Buy rating with a 12-month target price of Rs 255 per share on ~12x FY25e EV/ EBITDA because of the continuing strength of its core-Lifestyle business, which accounts for over 50%/60% of overall revenue/EBITDA.

Share price movement of Aditya Birla Fashion and Retail Stock
The current market price of Aditya Birla Fashion and Retail stock is Rs 198.85 per share, which fell by 0.38% on an intraday basis. In the last one year share price has declined sharply by 24.69%, while over three years it has surged by 93.83%.

Disclaimer
The stocks have been picked from the brokerage report of Anand Rathi. 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 consult with certified experts before making any investment decision.