ICICI Direct's research report on Aditya Birla Fashion and Retail
Post re-opening of standalone stores, malls, revenue recovery was visible QoQ but it continues to be below pre-Covid levels. Revenue posted de-growth of 55.7% YoY to Rs 1018.6 crore (I-direct estimate: Rs 1075 crore), with 95% of stores being operational. ABFRL continued its strategy of significantly reducing cash burns through cost rationalisation measures (Rs 417 crore cost savings in Q2FY21). This led to better than anticipated operational performance in Q2FY21. Reported EBITDA loss (post Ind-AS 116) was at Rs 1.7 crore vs. I-direct estimate of Rs 18.3 crore loss. Hence, PBT losses narrowed down significantly QoQ to Rs 242.4 crore (Q1FY21: Rs 533 crore). Through better inventory management (cash release worth Rs 259 crore) and proceeds of first tranche right issue (Rs 497 crore), it has paid off creditors to tune of Rs 550 crore and debt worth by Rs 90 crore to Rs 3159 crore (Q1FY21: Rs 3250 crore). With upcoming festive season, the management expects revenue recovery rate to improve to 70-80% in Q3FY21E and achieve normalcy levels by Q4FY21E.
Outlook
ABFRL expects the Flipkart deal to be executed by Q4FY21E. Capital infusion worth Rs 2245 crore (initial two tranches of rights issue: Rs 746 crore, preferential allotment: Rs 1500 crore) would strengthen the b/s and result in a significant decline in debt by ~Rs 1760 crore to Rs 1012 crore (D/E: 0.4x vs. 2.1x) in FY21E. The same would lead to a substantial reduction in interest outflow, going forward. With steady FCF generation from FY22E onwards, we expect debt/EBITDA ratio to decline to 0.7x by FY23E (6.0x in FY20). We believe that with its strong brand patronage and large distribution reach it will be able to revive its revenue growth post normalisation of scenario. We reiterate our BUY rating with target price of Rs 210 (2.0x EV/sales FY23E).
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