ABFRL reported a strong quarter with recovery and margins coming ahead of expectations in all key segments (Ebitda up 36% versus Q3FY20, 11% above estimate). Improved consumer sentiment along with a concentrated wedding season aided overall recovery. Also, ABFRL turned net cash positive this quarter. In addition to the new initiatives/acquisitions during the quarter (Reebok, Masaba and Tasva), ABFRL announced its foray into acquiring D2C brands with plans to leverage its expertise to help these businesses scale up.

Factoring in the beat in performance, we are raising FY22/23e Ebitda by 11/7%. Maintaining our target EV/Ebitda (21x) and a roll-forward to Jun-23e yields a revised TP of Rs 347. Maintain ‘Buy’.

Robust performance: ABFRL reported a 40% y-o-y jump in revenue to Rs 28.8 bn. Overall recovery touched 112% of Q3FY20. Segment wise, Madura was up 58% y-o-y with recovery at 128% of Q3FY20 (98% last quarter) and Pantaloons was up 31% y-o-y with recovery at 98% of Q3FY20. Lifestyle brands’ retail channel recorded growth of 30% over pre-Covid levels. The easing of restrictions for shopping malls, which constitute a large share of the store network, helped improve the recovery. Also, the wholesale channel for Lifestyle brands saw an improvement in traction. While margins for Pantaloons are in line, Madura reported a beat driven by lifestyle brands.

Also ABFRL turned net cash at the end of the quarter, generating OCF of Rs 10 bn driven by working capital release. ABFRL does not expect this to reverse.

Outlook: Strong show on recovery – We maintain the target EV/Ebitda of 21x and roll over the valuation to Jun-23e, yielding a revised TP of Rs 347. Key re-rating triggers stay improvement in Pantaloons/e-commerce traction. Losses from new initiatives could drive a de-rating.

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