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Dolat Capital Report
Aditya Birla Fashion and Retail Ltd.'s Q1 FY24 revenue and gross profit were in-line with muted expectations. Revenue/gross profit grew by 11/9% YoY.
Ebitda was -38% driven by higher rent and advertising and promotion spend. Higher depreciation and amortisation and interest costs accentuated the loss.
Lifestyle is steady growth and free cash flow engine. Pantaloons can see margin boosts with improvement in through-put, while others (innerwear, youth and western wear, super-premium brands, Reebok, Ethnic, D2C etc.) can provide strong growth.
But, with number of business under investment mode, earnings continue to remain volatile. These coupled with large investments in TCNS Clothing Co. Ltd. (~Rs 16 billion cash and dilution of ~5.5%) and weak sales momentum in Lifestyle /Pantaloons weigh on profit and loss and balance sheet.
That said, Aditya Birla Fashion's steep stock price correction (~40% from peak) and underperformance factors the concern.
Stock may go through time correction. Reiterate 'Buy' with revised target price of Rs 235 at 12 times enterprise value/Ebitda for Lifestyle/ Pantaloons and oen time EV/sales for new businesses.
Growth and margin sustenance in core and profitable scale-up in others is key for re-rating. Potential fund infusion from GIC (in FY24) at Rs 289/share would be another near-term trigger.
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