Buy Aditya Birla Fashion, target price Rs 180: Motilal Oswal

Motilal Oswal has given a buy rating to Aditya Birla Fashion and Retail with a target price of Rs 180. The share price moved down by -1.53 per centfrom its previous close of Rs 136.90. The stock’s last traded price is Rs 134.80.

As the COVID-19 led lockdown is gradually lifted, retail stocks, in line with the overall market, seem to be in a rebound mode, says the brokerage. Yet, the ABFRL stock is down 53%, a decline much higher than other retailers from its peak in Feb’20, which could largely be pinned on its high leverage.

The brokerage believes this significant correction provides a strong entry opportunity in the ABFRL stock as the company has (a) healthy cost cutting initiatives, (b) manageable leverage, (c) consistent execution capability, and (d) strong parentage. These factors give us confidence that ABFRL would emerge much stronger from the current crisis and win market share from smaller unorganized players.


Investment Rationale

According to the brokerage, earnings should take 3-6 months more to show some traction around the festive season. The ABFRL stock may offer limited upside in the near term. However, it trades at FY22E EV/EBITDA multiple of 24 times, which is at about 15 per centdiscount to its 3-year average multiple of 29 times (until March’20) and offers a good opportunity.


Further, ‘Unlock 1.0’ may also build some optimism for the stock. The brokerage has assigned (a) 22 times EV/EBITDA on FY22E EBITDA to the Lifestyle segment given its strong brand value and better return profile; (b) 20 times EV/EBITDA on FY22E EBITDA to Pantaloons as we believe though there is a strong foundation for future growth, it is yet has to attain scale, improve RoCE and margins; and (c) 1 imes EV/sales to other businesses, which are still loss-making but have strong potential to grow over time. Thus, it has arrived at 30 times FY22E implied EV/EBITDA with a target price of Rs 180.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1831.88 crore, down -29.07 per cent from last quarter sales of Rs 2582.74 crore and down -4.36 per cent from last year's same quarter sales of Rs 1915.31 crore. The company reported net profit after tax of Rs -146.59 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 59.07 per cent stake in the company as of March 31, 2020, while FIIs held 8.44 per cent, DIIs 21.92 per cent and public and others 10.56 per cent.