Aditya Birla Fashion and Retail Ltd - Rating outlook revised to 'Positive', Ratings Reaffirmed

CRISIL Ratings has revised its outlook on the long term bank facilities of Aditya Birla Fashion And Retail Limited (ABFRL) to 'Positive' from 'Stable' and has reaffirmed the ratings at 'CRISIL AA'. The short term ratings have been reaffirmed at 'CRISIL A1+'.

The revision in outlook factors expectation of further strengthening of the financial risk profile led by equity infusion of Rs 2,195 crore to be completed over fiscals 2023 and 2024. This, coupled with potential improvement in the business risk profile driven by revenue growth and operating margins expanding to 8-9% (pre-IndAS basis) / 18-19% (post-IndAS basis) may result in a rating upgrade.

The board of ABFRL, on 24 May 2022, had approved fresh equity infusion of Rs 2,195 crore by way of 7.5% stake dilution on post-issue basis to an affiliate (Caladium Investments Pte Ltd) of GIC, Singapore. The first tranche of Rs 770 crore is expected in the first of this fiscal and balance Rs 1,425 crore within 18 months of the 1st tranche.

Fiscal 2022 revenue rose by 55% to Rs 8,136 crore driven by strong recovery post relaxation of covid curbs leading to higher footfalls and strong traction seen during festive season. Ebitda margin (on post Ind AS basis) went up by 280bps to 14.8% on year driven by improved operating leverage. As of March-2022, net debt (excluding lease liabilities) stood at Rs 504 crore.

Backed by the strong market position of its apparel brands, addition of new stores and expanding presence in the ethnic wear segment, CRISIL Ratings expects double-digit revenue growth over the medium term. Operating margins are also expected to rise driven by increasing scale of operation and superior product mix.

The company has focused on expanding presence in the ethnic apparel retail segment through acquisition of 51% stake in Sabyasachi Couture, owner of brand "Sabyasachi" for Rs 398 crore and 33.5% stake in luxury couture business under "Tarun Tahiliani Brand" for Rs 67 crore. Going forward, the company may continue to carry out acquisition of select brands to widen its portfolio and invest in the Ethnic portfolio. Investments are also expected to be stepped up in the D2C (Direct to Consumer) business.

Capex is expected at ~Rs 300-350 crore p.a. mainly towards expansion of own stores in the Pantaloons format while growth in the Madura division would continue through the asset-light franchisee model. CRISIL Ratings expects the capex and any acquisitions to be funded through accruals and cash with low reliance on external debt.

The ratings continues to factor in company's strong business risk profile, backed by the solid market position of apparel brands of Madura division and strong value proposition of Pantaloons division as well as superior financial risk profile. The ratings also factors in strong management of Aditya Birla Group (ABG). These strengths are partially offset by intense competitive landscape for the apparel retail sector in India and susceptibility of performance to economic down cycles.

Shares of Aditya Birla Fashion and Retail Limited was last trading in BSE at Rs. 256.80 as compared to the previous close of Rs. 264.25. The total number of shares traded during the day was 43580 in over 1200 trades.

The stock hit an intraday high of Rs. 265.25 and intraday low of 255.20. The net turnover during the day was Rs. 11342380.00.

Source : Equity Bulls

Keywords

AdityaBirlaFashionandRetail INE647O01011 ABFRL RatingUpdate