Covid-related shutdowns will drive loss of revenue and consequent lower profitability for ABFRL over FY2020-22E. Resultant negative operating leverage will impact profitability. This apart, we remain sanguine on both Madura’s and Pantaloons’ long-term growth prospects. Although leveraged, we believe ABFRL is adequately funded to ride out the near-term uncertainty. We retain ‘buy’ with an SoTP-based fair value of Rs 180 (Rs 230 earlier).
ABFRL’s 4QFY20 and FY2021 financial performance including revenue growth and profitability will take a hit on account of store closures during the government-mandated Covid-19-related lockdown period. While the situation remains evolving, we model sharp YoY revenue decline in 1QFY21, with gradual recovery 2QFY21 onwards. As a result, we forecast the company to report a PBT loss in FY2021 with net debt of ~Rs 18 bn (similar to March 2020 levels).
ABFRL’s large unutilised credit facilities of ~Rs 10 bn give us comfort that the company can weather the current situation better than peers. We believe ABFRL has several levers to control costs, rental expense.
We are thus modeling in a sharp YoY reduction in fixed costs; the company’s ability to get more stores on the percentage-of-revenue rental model will determine the final extent of savings. We believe growth will gradually recover for the two businesses 2HFY21E onwards as mall footfalls improve. Overall, we model a reasonable revenue growth estimate of 11-12% for 2HFY21.
We revise our FY2020/21/22 estimates to reflect the impact of shutdowns in March and April 2020 and some demand slowdown in remainder of FY2021. We thus forecast PBT loss in FY2020 and FY2021. These one-off challenges aside, we believe ABFRL and its various brands remain well positioned to benefit from a gradual demand revival. We retain ‘buy’ with a revised SoTP-based fair value of `180 (`230 earlier).