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Emkay Global
Aditya Birla Fashion (Buy)
Target: ₹340
CMP: ₹282.3
Aditya Birla Fashion Retail Ltd (ABFRL) has entered into an agreement to acquire exclusive online and offline distribution rights for the global brand ‘Reebok’ for the Indian/ASEAN markets. The transaction also involves the purchase of certain inventory and other net current assets of ‘Reebok India Company’ to the tune of ₹8 crore to ₹100 crore.
This foray into the fast-growing sports segment increases the addressable market and is a key positive. However, the brand has struggled with lower growth, probably due to a lack of proper expansion/positioning in the market. ABFRL will need to invest in the brand for growth, but its strong online and physical retail presence through Pantaloons/MBOs should help expand the brand’s distribution significantly in our view.
Reebok is the fourth-largest brand in the Indian sports/active-wear market, with ₹430 crore in revenues in FY20, after Puma/Adidas/Nike whose top-line stood at ₹1,400 crore/₹1,200 crore/₹800 crore, respectively, in FY20.
We await the finalisation of the contract before factoring the transaction into our estimates. Faster recovery trends, an aggressive expansion outlook and potential margin gains should drive healthy revenue/EBITDA CAGRs.
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