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Buy Aditya Birla Fashion, target Rs 247: Anand Rathi

We expect the sales and profitability momentum of Aditya Birla Fashion to persist.

July 23, 2019 / 12:55 PM IST
 
 
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Anand Rathi

Pantaloons’ poor performance led to Aditya Birla Fashion and Retail's Q4 FY19 revenue and EBITDA slipping below our estimates. For FY19, though, Pantaloons’ 12/35 percent revenue/EBITDA growth is encouraging.

Madura Lifestyle brands reported a steady 11/15 percent revenue/ EBITDA growth in FY19 (SSSG 5.3 percent growth) following a couple of years of subdued growth. These brands account for ~53 percent of sales and almost all EBITDA; hence, the brighter prospects of this division keep us upbeat about the company.

Q4 revenue at Rs 19.2 billion grew 9.2 percent YoY, below our estimated ~12 percent. EBITDA was down 24 percent to Rs 1.2 billion due to higher marketing spend (up 100bps YoY), a one-time inventory mark-down in Pantaloons and a doubling of ‘others’ business losses.

The EBITDA margin shrank 280bps YoY to 6.5 percent. Pantaloons reported revenue declined 1.2 percent YoY to Rs 6.3 billion (IND-AS adj. growth: 4 percent), pulled down by the 4.4 percent SSSG decline.

Its EBITDA margin contracted 216bps to 2.1 percent. Madura Lifestyle brands grew 11.4 percent to Rs 11.3 billion driven by 6 percent SSSG growth; its EBITDA margin contracted 141bps to 14.

In the year the company added 40 Pantaloons and ~300 Madura stores. It expects the relentless network expansion to continue in FY20 as well. With the higher marketing spends, vigorous store expansions, brand extensions and product value enhancement, we expect the sales and profitability momentum to persist. Also we are expecting revenue/EBITDA CAGRs of 12/7.6 percent over FY19-21.

We upgrade our rating to a Buy, with a lower target of Rs 247 based on 20.6x FY21e EV/EBITDA.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​

Moneycontrol Contributor
Moneycontrol Contributor
first published: Jul 23, 2019 12:55 pm

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