Target: ₹385
CMP: ₹324.50
Aditya Birla Fashion & Retail Ltd (ABFRL) registered a mixed performance in Q1FY2025 amid a sluggish demand environment with organic revenues growing by low single digit while focused cost-control measures aided margin expansion across businesses.
Consolidated revenue grew 7.3 per cent y-o-y to ₹3,428 crore (2 per cent y-o-y growth excluding TCNS), led by new businesses. Established businesses posted muted performance, with Lifestyle brands’ revenue declining by 7 per cent y-o-y and Pantaloons’ LFL growth at 2 per cent y-o-y while new businesses reported strong revenue growth (partly backed by inorganic growth), with ethnic business at 2.6x y-o-y (aided by TCNS acquisition) and TMRW doubling y-o-y (organic growth at 47 per cent).
ABFRL delivered decent operating performance in a muted demand environment, while higher interest cost and depreciation hit profitability. We believe the vertical demerger of MFL into a separate entity is the right strategy to simplify the company’s structure.
Separating entities under the revamped organisational structure with an appropriate capital-allocation plan can create value for shareholders in the long run. The stock is trading at 22x/17x its FY2025E/FY2026E EV/EBITDA.
Key Risks: Any sustained slowdown in recovery due to weak demand in the branded apparel space in the coming quarters would act as a risk to our estimates in the near term.
