Aditya Birla Fashion & Retail (ABFRL) shares extended gains on Friday after ICICIdirect has initiated coverage on the stock with a buy recommendation and a target price of Rs 210. The stock rallied 2.5 percent intraday (from 0.8 percent) after this report, in addition to 0.8 percent upside in previous session.
ABFRL enjoys a vantage position in its men’s portfolio built over wide offerings across price points (mass to luxury), broad categories (men’s, women’s and kidswear & accessories) and diversified market channels (MBO+EBO+SIS).
Strong track record of organic & inorganic growth, restorative growth in Madura through extensions and turnaround in Pantaloons position ABFRL at a vantage point leading to five-fold increase in PAT to Rs 262 crore by FY19, ICICIdirect feels.
It believes newer brands coupled with the existing portfolio would provide cohesive growth to company's revenues, which are expected to grow at a CAGR of 15 percent to Rs 8,841 crore and return on capital employed expansion to 14.6 percent (against 2.4 percent currently).
ABFRL combined Madura's portfolio of leading power brands with Pantaloon’s forte of largest value fashion retailer. The combination positions ABFRL as India’s fashion powerhouse offering 5000 styles and more than 200 brands.
A pan-India distribution network of 2,261 exclusive brand outlets (EBOs) spanning across 6.2 million square feet covering 375 cities and towns, ABFRL reaches out to over 13 million discerning customers.
With induction of brands like Ted Baker, Simon Carter and Forever 21, ABFRL continues to provide greater choice to its consumers across formats and channels. In-house design and product development capabilities remain central to merchandising requirements of its widespread network.
The research house said a slew of newer brands entering the Indian fashion industry resulted in flat like-to-like (LTL) in the past two years for Madura. It believes moderation of prices (around 10 percent), coupled with a change in inventory cycle from two to four season and launch of brand extensions (innerwear) would revive LTL growth to 5-6 percent in Madura posting revenue CAGR of 12 percent in the lifestyle category.
Furthermore, fast fashion (Forever 21 + People) is expected to grow at a CAGR 26 percent in FY17-19. Cumulatively, Madura's revenues are expected to grow at a CAGR of 13 percent to Rs 5,247 crore in FY17-19, it said.
The research house further said the integration issues of Pantaloons, since its acquisition in FY13, have largely been addressed. Refurbishment of store product mix by hiring a core team of 280 people across design, merchandising and sourcing has struck the right chord to Madura’s ideology, resulting in consistent LTL growth for Pantaloons.
Increased share of private labels (61 percent versus earlier 45 percent) has resulted in a 300 bps expansion in EBITDA margins to 5 percent in FY17, it added.
With the right model in place, ICICIdirect expects Pantaloons to accelerate store openings to around 50 stores annually in FY17-19 (versus sub-30 stores over FY14-17), generating revenue CAGR of 19 percent to Rs 3,594 crore.
At 12:19 hours IST, the stock price was quoting at Rs 176.00, up Rs 3.70, or 2.15 percent on the BSE.
Posted by Sunil Shankar Matkar
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