Aditya Birla Fashion and Retail Ltd - Ratings upgraded and reaffirmed, outlook revised to Stable from Positive

The long-term rating upgrade considers the significant improvement in the scale of operations of Aditya Birla Fashion and Retail Limited (ABFRL) and ICRA's expectation that business and financial risk profiles of ABFRL will continue to further strengthen over the near term. ABFRL reported a healthy YoY growth of 63% in revenues in 9M FY2023, led by the strong performance of lifestyle brands in the Madura segment and store expansion across various brand formats. ICRA expects ABFRL to clock a double-digit revenue growth in FY2024 and FY2025, led by steady performance of the lifestyle segment, regular increase in store counts across various brands and ramp-up of new businesses including ethnic wear, innerwear and the athleisure segment. The operating profit margins (OPMs) are also expected to improve gradually, aided by the benefits of operating leverage and improvement in profitability of new businesses. The ratings also factor in the significant fund-raising tied by the company, which coupled with an improvement in cash flows will limit dependence on external debt and further strengthen its financial risk profile.

The board of directors on May 24, 2022, had approved fund raising of up to Rs.2,195 crore by way of issuance of equity shares and warrants on a preferential allotment basis to Caladium Investment Pte. Limited, an affiliate of GIC, Singapore's sovereign wealth fund. Of this, Rs. 770 core has been infused till H1 FY2023. Aided by equity infusions over the last three years, ABFRL has sharply deleveraged its balance sheet. As on January 31, 2023, the company had an estimated net debt of Rs. 638 crore. The same is expected to reduce significantly by March 2024 post receipt of the second tranche of equity investment of Rs. 1,425 crore. This coupled with an improvement in cash flows from the existing and new businesses should facilitate sustenance of net debt to operating profit of below 1 times.

The ratings favourably factor in ABFRL's strong business profile and leadership position in the domestic branded apparel industry, supported by its diverse product portfolio and extensive multi-channel reach across India. The ratings continue to derive comfort from ABFRL's superior financial flexibility for being a part of the Aditya Birla Group (ABG) and ICRA's expectation that the Group would provide need-based funding support to ABFRL. As a part of ABG, ABFRL also receives operational support and benefits from the extensive experience of the management team, which facilitates superior execution capabilities. The liquidity position of the company remains adequate, with unencumbered cash and bank balances as well as liquid investments (Standalone) of Rs. 595 crore, along with unutilised fund-based bank limits of around ~ Rs. 1,500 crore as on January 31, 2023.

ICRA notes the intense competition in the fashion segment in which ABFRL operates, characterised by domestic as well as international brands along with a few established retail players. Besides, the business remains vulnerable to any economic slowdown. The ratings are also constrained by the continued operating losses in the business segments like innerwear and athleisure as well as the recently acquired ethnic businesses.

The Stable outlook reflects ICRA's expectations that ABFRL's credit profile would continue to remain adequately supported by a healthy improvement in cash flows, aided by profitable ramp-up across the business segments. Along with the equity fund infusion, this would limit reliance on debt for funding expansion and working capital requirements, leading to healthy debt coverage indicators.

Shares of Aditya Birla Fashion and Retail Limited was last trading in BSE at Rs. 236.25 as compared to the previous close of Rs. 236.35. The total number of shares traded during the day was 63765 in over 1289 trades.

The stock hit an intraday high of Rs. 237.90 and intraday low of 233.65. The net turnover during the day was Rs. 15049814.00.

Source : Equity Bulls

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AdityaBirlaFashionandRetail INE647O01011 ABFRL RatingUpdate