Aditya Birla Lifestyle Gets 'Neutral' Rating As Motilal Oswal Resumes Coverage

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Motilal Oswal Report

We expect Aditya Birla Lifestyle Ltd. to deliver ~10% revenue CAGR over FY25-28E, driven by-

1. acceleration in retail store additions in lifestyle brands (~700 net store additions over FY25-28E),

2. improvement in store productivity (~3.5% SPSF CAGR over FY25-28E) and

3. scale-up of emerging brands.

Driven by lower discounting, an improved channel mix, a scale-up in profitability of emerging brands and operating leverage benefits, we expect gross/Ebitda margin to expand ~80bp/~140bp to 59%/16.6% by FY28E. 

PAT growth is likely to be significant (~51% CAGR over FY25-28E), driven by operational improvements and benefits of deleveraging.

We expect Aditya Birla Lifestyle to generate cumulative free cash flow of ~Rs 11 billion (post leases and interest) over FY25-28E, which should lead to net cash position (excl. leases) and dividend payouts by FY28E.

Based on the share price of demerged Aditya Birla Fashion immediately after the demerger, the market is ascribing ~Rs 171/share or ~Rs 210 billion market cap to Aditya Birla Lifestyle.

We value Aditya Birla Lifestyle based on the SoTP methodology. We ascribe 15x FY27E EV/Ebitda multiple to Aditya Birla Lifestyle’s lifestyle brands and ~1x FY27E EV/sales multiple to Aditya Birla Lifestyle’s emerging brands to arrive at a target price of Rs 190/share or ~Rs 230 billion market cap, which implies ~16.5x FY27E EV/Ebitda (or ~28.5x FY27E pre-INDAS Ebitda).

We assume coverage onAditya Birla Lifestyle with Neutral rating.

Key risks and concerns

• Persistent weakness in demand could affect its store addition plan and SSSG for existing stores.

• A slower-than-expected scale-up of emerging brands,

• Higher-than-expected rental and manpower cost escalations,

• Capital misallocation through non-value-additive M&As, and

• Exit by shareholders (who invested for demerger gains or recent investors in Aditya Birla Fashion’s fund raise) could also be near-term overhang.

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