Aditya Birla Lifestyle Rated New 'Buy' At Bernstein — Here's Why

Bernstein has initiated coverage on Aditya Birla Lifestyle Ltd. with a target price of Rs 170 and a 'Market-Perform' rating. The company recently got demerged from parent arm Aditya Birla Fashion and Retail Ltd. to list as a separate entity on exchanges on June 23.

The brokerage believes, "ABLBL's market leader legacy brands have strong brand recall and profitability".

Bersentin also highlighted ABLBL's portfolio noting that the brand has two key parts, Lifestyle brands like Louis Philippe, Van Heusen, Allen Solly and Peter England, "which are its legacy business and have defined the western formal wear category in India over the last 2 decades", and emerging brands Reebok, American Eagle, Van Heusen Innerwear.

The brokerage however, noted that existing high market penetration, 'casualisation' trend, and competitive intensity may limit long-term growth.

Marking further challenges, the brokerage also noted that historically, lifestyle brands have underperformed and pose growth constraints. In the last 10 years, they have recorded less than 6% compound annual growth, less than nominal GDP growth.

Berensten said, future industry growth will likely be driven primarily by replacement demand due to high formalisation already. The casual & wedding wear segments are growing, but remain highly competitive.

"We remain on the fence about whether efforts on product or branding can lead to double-digit growth for the medium-term, " it added.

The brokerage also noted that sports, athleisure, and innerwear are higher-growth categories, outpacing the apparel segment.

It said, ABLBL's brands are the smallest among peers and are still establishing a meaningful right to win. Historical growth of 20% has been driven by the addition of brands to the portfolio. "We expect double-digit medium-term growth, but a muted profitability profile given scale and competition," Bernstein said.

The brokerage projects the company to deliver around 9.5% growth for the next five years, i.,e between FY25-FY30 at 10% earnings before interest, tax, depreciation and amortisation.

"Consistent double-digit growth would be the key upside risk to our thesis and could potentially lead to a re-rating of the stock, in our view," the brokerage said.