Aditya Birla Fashion and Retail’s (ABFRL) 12.5% y-o-y revenue growth came in line with estimate, while Ebitda spurt of 30.7% and PAT at Rs 21.8 crore surpassed estimates. After 4·5-quarters of decline, Lifestyle brands (core Madura brands) posted flattish SSG; this, coupled with increased transparency—reported 15.6% core Ebitda margin for the first time—is encouraging. Pantaloons’ SSG slipped 5% owing to advancing of EOSS, which should recover. Fast Fashion revenue (Forever 21 and People) catapulted 205% and the growth story is on track.
We are enthused by ABFRL’s leadership in Madura, Pantaloons’ stronghold in the women’s segment, as well as the Forever 21 acquisition. Q4FY17 for ABFRL was characterised by improvement post-demonetisation woes with flattish Lifestyle brands’ SSG after 4·5 quarters of decline. The company surprised the Street by disclosing Ebitda margin for its Lifestyle brands, which came at 15.6% y-o-y versus Arvind’s Power brands’ ~14.0%.
However, Pantaloons disappointed by reporting negative 5% SSG, primarily due to store disruptions and early EOSS, which commenced in December-end. Pantaloons is, however, confident of recovery and has opened 79 stores (33 of which were added in Q4FY17, mostly backended). ABFRL’s Fast Fashion is on track (205% y-o-y growth) and the company expects Forever 21 to turn Ebitda positive by FY18.
Ebitda margin expanded 98bps y-o-y which we estimate to improve sharply once operating leverage benefits start kicking in. ABFRL estimates the Indian-branded apparel segment to double over the next 5 years. Womenswear and casualwear segments continued to lead market growth. ABFRL is planning to invest further in Madura brands, which is bound to improve margin. Pantaloons’ SSG was impacted by 2 store shut downs/renovations. ABFRL is targeting SSG of 5% in Pantaloons with a shortened EOSS.
Anchored by anticipated revival in Madura and Pantaloons, we are confident of resumption of strong growth trajectory starting H1FY18. We assign 20x FY19E EV/Ebitda and arrive at target price of Rs 200. The stock is currently trading at 17.3x FY19E EV/Ebitda. We maintain ‘BUY/SO’.