We maintain the target EV/EBITDA at 18x June 2022E, which yields an unchanged TP of ₹224. Maintain ‘Buy/SO’. Flawed capital allocation remains a key risk though.
Lifestyle brands are the group’s cash cow with growth potential. Key highlights: increasing share of casualwear (at 60% versus 34% in FY10). The business remains the group’s cash cow, generating ₹3bn in annual FCF for the last five years. Growth opportunities still available (targeting 3,750 new stores over FY21–26E) driven by new concepts such as Peter England Red and Allen Solly Prime. Besides, ABFRL is targeting to increase e-com share to 18–20% (~7% now). Pantaloons, moving beyond turnaround and investment phase.
A major highlight in our view is ABFRL’s expectation of generating ₹5bn in FCF over FY21–26E from Pantaloons following its significant investment in the business over FY12–20. ABFRL also targets to take private label/e-commerce share to 75%/10% by FY25 (FY20: 61%/2%), and plans to add 250 stores over the next three years. Ethnic to increase target market; innerwear scale-up to continue. Ethnic makes up the largest segment of apparel.
ABFRL expects ethnic wear to drive a signification share of growth (~20% of incremental revenue over FY20–26). In the wake of its acquisitions and via Pantaloons, ABFRL has five brands spread across various price points. For innerwear, ABFRL is targeting ₹15bn in revenue driven by expansion of its EBO network to 500 (from 44 at present), majorly via franchisees.
There is an evident sharpening of focus from the Aditya Birla Group in driving ABFRL’s performance, which we believe is a clear reflection of Kumar Mangalam Birla becoming the chairman. Through its interaction at the analyst meet, ABFRL has set clear targets for each segment, against which it would monitor its performance.
Overall, ABFRL is targeting a 15%/23% growth in revenue/EBITDA over FY20–26E with a target of generating ₹20bn in FCF (OCF: ~₹40bn, capex: ~₹20bn). Through its brand portfolio, ABFRL remains a strong structural story, not to mention its execution prowess to deliver. We maintain the target EV/EBITDA at 18x June 2022E, which yields an unchanged TP of ₹224. Maintain ‘Buy/SO’. Flawed capital allocation remains a key risk though.
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