Brokerage house Phillip Capital remains bullish on Aditya Birla Fashion and Retail (ABFRL) as it believes the latest fund raise by the firm will accelerate its growth. The brokerage maintained its 'buy' call on the stock with a target price of ₹347 per share, indicating an upside of 35 percent for the stock.
The company, on Tuesday (May 24), announced that its board has approved the raising of up to ₹2,195 crore from Singapore’s sovereign wealth fund, GIC, by way of preferential issuance of equity and warrants. GIC will invest ₹770 crore now towards subscription of equity and warrants, and follow it up by pumping in ₹1,425 crore in one or more tranches within 18 months, it informed.
The stock has been on a correction past in the last couple of months. Just in May, it has fallen over 10 percent, while it has lost 6 percent in 2020 YTD. However, in the last 1 year, the stock has gained 40 percent.
After this investment, GIC will own a 7.5 percent equity stake in ABFRL, while Aditya Birla Group will hold a 51.9 percent stake in the company.
ABFRL added that this capital will be used by ABFRL to accelerate its growth and build around its business, along with a rapidly evolving play in emerging high-growth business models.
According to the brokerage, the firm might witness cash burn as the entity might go through a period of losses as some of the brands will require deep investments in order to scale up. The latest fund raise will help the firm accelerate its growth, it noted.
Commenting on the firm's March quarter earnings, the brokerage stated that the first half of Q4 was impacted back the delta variant whereas March witnessed a robust recovery.
"Q4 would’ve been a record-breaking quarter if not for the impact of the third wave as Pantaloons saw a sale loss of ₹150-160 crore during the quarter. As momentum picked up later in the quarter, the company was able to capitalize on it given its strong wedding, casual and sports and formal assortment," it added.
In Q4, the firm's revenue increased 25 percent to ₹2,283 crore from ₹1,822 crore in Q4FY21. Meanwhile, PAT stood at ₹43.6 crore in Q4FY22 against a loss of ₹137 crore in Q4FY21.
The consolidated EBITDA for Q4 increased 58 percent YoY to ₹401 crore. As per the firm, a robust performance across categories led to a 17.6 percent EBITDA margin this quarter, an expansion of more than 350 bps over the previous year.
However, going ahead the brokerage sees the margins of the firm for FY23 could be slightly lower than the H2FY22 level. Some of the cost savings done during the pandemic will scale back up to pre-covid levels but there will be a significant increase in marketing spends in FY23, it added.
Post the earnings, Aditya Birla Group Chairman Kumar Mangalam Birla said, “Indian Apparel industry is set for robust long-term growth due to strong fundamentals of a large and growing middle class, favourable demographics, rising disposable incomes and aspiration for brands. ABFRL has become one of the leading players in this market through its diversified portfolio of strong brands, wide distribution & an established business model and is well-positioned to benefit from this opportunity,” further adding that an investment of this nature serves to underscore ABFRL’s position and growth model.
Pantaloons’ business grew by 13 percent over last year, despite disruption in large format stores due to COVID-19 third wave. Lifestyle brands – Revenues grew 34 percent YoY, while EBITDA grew 77 percent, on the back of the revival of wholesale business, the company said in its earnings. It added that ethnic businesses showed sharp growth in revenue, with scale coming from both network expansion, new portfolio additions and category extensions.
As per the brokerage, in FY23, Lifestyle can witness an annual addition of 400 stores for a few more years whereas Pantaloons will see an addition of 75 stores.
Phillip Capital also revised its FY23 Revenue/EBITDA estimates upwards by 16.7 percent/16.2 percent as it incorporates Reebok consolidation, faster than expected recovery in Pantaloons couple with aggression in ethnic vertical.
Aditya Birla Fashion and Retail Limited, formerly Pantaloons Fashion & Retail Limited, is a fashion and lifestyle company. The Company is engaged in providing branded fashion apparel and accessories, and the retail sale of clothing, footwear and leather articles in stores. It operates through two segments: Madura Fashion & Lifestyle, and Pantaloons.
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