This Large Cap Retail Stock Has A Buy Call From ICICI Direct For 26% Upside

On the BSE, Aditya Birla Fashion Retail Ltd (ABFRL) shares surged to a high of Rs 292.35 at 09.25 a.m., up from a previous close of Rs 283.50. The increase may be attributed to the companys acquisition of the license to market and distribute Reebok products in India. As a result, the brokerage company ICICI Direct is also bullish on the shares of Aditya Birla Fashion Retail. According to the brokerage, the stock may reach a target price of Rs. 360 in 12 months, representing a 26 percent rise from the current market price of Rs. 285. In its latest research report, the brokerage has highlighted that ABFRL has acquired the licencing rights to sell and distribute Reebok products in India from Authentic Brand Group, US (ABG). It has also entered into a purchase agreement to buy inventory and other current assets and liabilities for a consideration of Rs. 75-100 crore. Reebok has ~180 stores operational in India (mainly franchise-led) while revenue as of FY20 was at Rs. 429 crore (with early double-digit margins). The company would also leverage its robust distribution network to distribute the products of the brand through Pantaloons and other MBOs. ICICI Direct has also claimed that Historically, under the Adidas group, Reeboks revenue from Indian operations has been subdued with revenue CAGR of ~5% in FY14-20. However, with the change in ownership (Adidas signed a definitive agreement to sell the Reebok brand to ABG group in August 2021), the brand is well placed to script a turnaround with Reebok having significant brand equity globally. The partnership is in line with ABGs global Reebok strategy of connecting strong brands with best-in-class licensees and network of partners that seek to optimise value in the marketplace.Advertisement The deal would mark ABFRLs foray into Indias fast-growing sports & activewear segment (expected to grow to US$13 billion by FY24E at 14% CAGR).We expect ABFRL to accelerate Reebok stores to 500+ over next five years (asset light expansion) with revenue expected to reach Rs. 1000 crore. We expect ~ Rs. 400 crore revenue with EBITDA increasing ~ 3% in FY23E.ABFRL has aggressive store addition plans for FY22E with 60+ Pantaloons store and 400+ (franchisee) lifestyle brand stores. Besides, it has a target of opening 100 Pantaloons stores annually over the medium term.ABFRL has charted out growth strategies to become a ~US$2.8 billion entity (Rs. 21000 crore) by FY26E, translating to 15% CAGR in FY20-26E. As per the analysis of ICICI Direct The stock price of ABFRL has appreciated at a CAGR of ~14% over the last five years. ABFRL has strengthened its balance sheet through recent equity infusion with net debt declining sharply from Rs. 2500 crore to ~Rs. 870 crore. We remain structurally positive and maintain BUY with a revised target price. We value ABFRL at Rs. 360 i.e. 3.0x FY23E EV/sales. The stock has been picked from the brokerage report of ICICI Direct. 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.