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Motilal Oswal
Aditya Birla Fashion & Retail (Buy)
CMP: ₹222
Target: ₹260
Aditya Birla Fashio & Retail (ABFRL) holds a healthy and diversified portfolio mix consisting four leading menswear brands, Pantaloons in the value-fashion retail format, men/women’s innerwear through Van Heusen’s brand extension, and women’s fast-fashion venture — Forever 21.
Recently launched men’s innerwear under the well-known Van Heusen brand should see robust about 2x revenue growth and lower EBITDA losses by FY21 driven by distribution ramp-up. The lifestyle segment consisting four marquee brands and product extensions should achieve moderate growth over FY19-21. We expect healthy overall revenue/EBITDA CAGR of 14 per cent/23 per cent over FY19-21. Overall EBITDA margin should expand about 125 bps to 8.7 per cent by FY21 on the back of a) break-even in the innerwear and fast-fashion businesses; b) steady uptick in Pantaloons’ private label mix (70-75 per cent); and c) the company’s strategy of franchisee-led store additions, which should provide an impetus to RoCE. We initiate with a Buy rating and an SOTP-based TP of ₹260. We ascribe 23x FY21 EBITDA of ₹670 crore for the lifestyle segment given its strong brand value. We expect Pantaloons to drive earnings growth for ABFRL and ascribe 18x FY21 EBITDA of ₹390 crore for this segment. We ascribe 1x FY21 sales for the fast-fashion and other businesses. This implies about 10 per cent premium to the target EV/EBITDA multiple for our apparel coverage.
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