Aditya Birla Fashion and Retail - Poised for gradual recovery; risk-reward better - ICICI Securities

Key takeaways from Aditya Birla Fashion and Retail (ABFRL)'s Q2FY21 result: a) Standalone revenue declined 56% YoY - in-line with consensus expectations, with better performance in retail channel of Lifestyle business, which declined 42% YoY; b) management expects gradual recovery to 70-80% of last year in Q3FY21 and near-normalcy by Q4FY21; c) store expansion is back on track - added over 100 stores (gross) across businesses with plans to add another 150-200 stores in H2FY21; d) online sales continued strong traction with 3x YoY growth on low base; and e) net debt to fall below Rs10bn by Jul'21 post capital raising of Rs25bn through rights issue and investment by Flipkart. We maintain our FY21-23E estimates with DCF-based (Sep'22E) target price unchanged at Rs197/share. Maintain BUY, given key investor's concern on ABFRL's high leverage getting addressed with capital raising and improving visibility for acceleration in growth.

- Standalone revenue declined 56% YoY to Rs10.2bn, while post-Ind AS 116 EBITDA (including other income) declined 62% YoY to Rs1.4bn in Q2FY21. Lifestyle business revenue declined 58% YoY to Rs5.3bn. In Lifestyle business, retail channel sales performed better, declining 42% YoY, while impact on wholesale channel was still higher with revenue declining 88% YoY in Q2FY21. Besides, store openings are back on track as company added 100+ (on gross basis) new stores in Q2FY21 with plans to add another 150-200 stores in H2FY21, given huge scope for penetration. Lifestyle business EBITDA declined 82% YoY to Rs390mn in Q2FY21.

- Pantaloons revenue declined 60% YoY to Rs3.7bn with EBITDA declining 51% YoY to Rs710mn in Q2FY21. Pantaloons has witnessed staggered opening in retail network with 96% stores opening by Sep'20-end. E-commerce sales grew 3x YoY in Q2FY21. Besides, share of private labels increased 500bps YoY to 67% during the quarter owing to introduction of sarees, home furnishing segment and increased traction in kidswear. ABFRL has added seven new stores and closed 10 stores in Q2FY21 taking its total count to 339 stores as of Sep'20-end.

- Cost optimisation continued in Q2FY21. The company reduced fixed costs by Rs4.2bn and Rs8.7bn in Q2FY21 and H1FY21, respectively. Rent/employees/other expenses declined 36%/31%/45% YoY, while other income of Rs1.4bn included Rs1.2bn relating to reduction in rent for the period of store closure.

- FCF stood at negative Rs11.1bn on operating losses, Rs2.9bn working capital need and Rs0.8bn capex in H1FY21. Inventory declined Rs2.6bn, while Rs5.5bn creditors were paid-off. ABFRL will be raising Rs25bn equity by Jul'21 (rights issue and investment by Flipkart by Mar'21) which will bring down net debt below Rs10bn by Jul'21 from Rs31.6bn in Sep'20 and net debt to EBITDA below 1.5x by FY22E.

Shares of Aditya Birla Fashion and Retail Ltd was last trading in BSE at Rs.157.25 as compared to the previous close of Rs. 158.3. The total number of shares traded during the day was 38632 in over 897 trades.

The stock hit an intraday high of Rs. 159.75 and intraday low of 157.25. The net turnover during the day was Rs. 6107539.

Source : Equity Bulls

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