Aditya Birla Fashion's Shares Gain As Analysts See Reebok Tie-Up Aiding Growth

Analysts expect Aditya Birla Fashion and Retail Ltd.'s foray into the fast-growing sport segment with the tie-up with Reebok to aid overall growth of the company. That pushed up its stock prices.

Aditya Birla Fashion acquired exclusive online and offline rights of Reebok for the Indian market from the Authentic Brands Group for Rs 75-100 crore, according to an exchange filing. The long-term licensing agreement grants ABFRL exclusive rights to distribute and sell Reebok products through wholesale, e-commerce and Reebok-branded retail stores in India and other Asean countries.

"Over the last few years, this segment [sports and activewear] has been growing rapidly on the heels of rising income levels, increased health consciousness and the adoption of active lifestyles by young Indians," the filing said. "This segment is expected to grow to $13 billion by FY24 at an annual growth rate of about 14%."

Analysts, too, expect the strong presence of Reebok over the last two decades to aid ABFRL's Ebitda.

The stock rose as much as 3.41% intraday to Rs 293 apiece before erasing the gains. Over the past two sessions, it has risen over 6%.

Of the 25 analysts tracking the company, 21 maintained a 'buy', three recommend a 'hold' and one suggests a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 14.5%. The stock's trading volume was 4.6 times the 30-day average volume for this time of the day.

Here's what the brokerages have to say about Aditya Birla Fashion and Retail:

Emkay Global

• Reiterates 'buy' with a target price of Rs 340—an implied return of 19.99%.

• Acquisition of online and offline distribution rights of Reebok for India/Asean markets indicates foray into fast-growing sports segment.

• Foray into sports segment increases the size of company's addressable market and is a key positive.

• Company needs to invest in Reebok to expand its distribution; strong online and physical retail presence through Pantaloons/multi-brand outlets likely to help the company expand the brand's distribution.

• Reebok's acquisition could aid growth as it is the fourth-largest brand in Indian sports/activewear market after Puma, Adidas and Nike.

• Reebok's Ebitda margins have been on the rise and transaction, which is expected to close by fourth quarter of FY22, will be Ebitda/earnings per share accretive.

• Reebok acquisition is likely to add 5-7% to Ebitda/EPS estimates.

• Better margins will offset the impact of higher capital deployment.

• Awaits finalisation of contract to factor in the impact into estimates.

• Reebok India's profitability profile has been on an upward trajectory.

• Recovery, expansion and margin gains are likely to drive revenue/Ebitda compound annual growth rate of 11%/15% in FY20-24E.

ICICI Securities

• Reiterates 'buy' with a target price of Rs 336—an implied return of 17.89%.

• Entry into long-term licensing agreement with Reebok International to acquire exclusive rights to brand for India will strengthen the overall portfolio of the company.

• Transaction likely to add 4-5% to consolidated Ebitda from FY23E and would accelerate the overall Ebitda CAGR of the company.

• Acquisition of Reebok India's assets comes after four acquisitions in the ethnic wear segment over the past three years, and is in line with the company's 'string of pearls' strategy of acquisitions.

Motilal Oswal

• Reiterates 'buy' but cuts target price from Rs 350 to Rs 340—an implied return of 19.99%.

• Acquisition of Reebok India's business is a high value-accretive deal. The company has acquired a strong and established Indian brand, with high visibility and very low upfront payment.

• Foray into sportswear segment augurs well for the company as it is the fastest-growing category in the footwear markets and underscores high growth opportunity.

• Recent fundraise through a rights issue and the strategic stake sale to Flipkart has brought the company's leverage under control.