“BUY” This Large Cap Retail Stock With A Target Price of Rs. 340: Emkay Global

Emkay Global Financial Services Limited a leading brokerage house has given a buy rating on the stock of Aditya Birla Fashion Retail Limited (ABFRL) with a target price of Rs. 340. The stock was trading at a market price of Rs. 277 at the time of the brokerages buy call, and the brokerage anticipated a gain of 22% in 12 months for the stock. However, the stock is now trading at a market price of Rs. 259 per share on the NSE. Emkay Global has commented in its research report that In terms of Q2 recovery, we note that ABFRL led the pack with an impressive per-store recovery of ~110% for Lifestyle business vs. 70-80% recovery for peers. Recovery in Pantaloons has also been strong at ~100% in the festive season, with the opening up of malls and upbeat consumer sentiment. According to the brokerages research report ABFRLs overall growth in Q2 was impacted by the weak wholesale channel due to lower stocking by MBO/LFS. In our view, recovery in this channel, coupled with strong festive demand, can boost growth in H2. Store additions were muted in H1 vs. 5-10% network expansion seen by V-Mart/Trent. The slower additions were due to operating challenges and ongoing renovations for Pantaloons. However, store additions are expected to pick up with ~100 stores for Ethnic in the next 12 months and ~60/250 net-new additions for Pantaloons/Lifestyle in FY22. Overall CAPEX is expected to be in the range of Rs4bn. The brokerage has also claimed that the companys Ethnic and innerwear account for ~40% of Indias apparel industry (USD67bn in FY20). In our view, with these new segments, ABFRL now has the most diversified portfolio among peers, addressing 75-80% of the overall apparel opportunity. The growth opportunity in the Ethnic category is yet to play out. Management has robust growth plans in this space, which can surprise ahead.Advertisement According to the brokerages call Strong demand trends, aggressive portfolio/store expansion and improving efficiencies keep us positive. After the recent 10% correction, valuations at ~25x Dec23E pre-IndAS EBITDA are at a discount to peers. Further, the expansion into Tier-2/3/4 cities with Pantaloons/PE-Red/AS-Prime and traction in the Ethnic category should help sustain high-teen earnings growth well beyond FY24. Reiterate Buy with a TP of Rs340 (30x Dec23E pre-IndAS EBITDA). The emergence of a third Covid wave remains a key risk to our estimates. The stock has been picked from the brokerage report of Emkay Global Financial Services Limited. 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.