Emkay Global Financial's research report on Aditya Birla Fashion and Retail
ABFRL’s Q2 EBITDA was 13-15% lower than our estimates. While revenue was 1-2% ahead of estimates, the full EoSS impact for Pantaloons and higher investments in marketing/Ethnic caused the miss on EBITDA margin. Management seems more confident about beating its FY26 topline target of Rs210bn, which implies a strong 27% FY22-26E CAGR. However, ABFRL indicated a need for higher near-term investments in Ethnic (Tasva) and Innerwear, till both segments achieve critical mass. Among other segments, Lifestyle is already generating surplus FCF and Pantaloons should be able to sustain the strong growth targets on its own. We cut FY24/25E EBITDA by 5-8%, led by 110-160bps reduction in our margin estimates on higher near-term investments. However, we remain confident about ABFRL's FY25-35 growth potential and increase medium-term growth expectations by 300bps, as margin improvement will now be relatively back-ended vs. earlier expectations.
Outlook
We maintain BUY with a Dec-23 TP of Rs380/share, based on 30x Dec-24 EBITDA (Pre-IndAS) vs. 25x earlier.
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