Over the last few years, Aditya Birla Fashion has built its portfolio around five key consumption themes – western wear, ethnic wear, masstige and value retail, luxury retail, and digital brands – through organic and inorganic routes. The company is gearing up for the demerger of its legacy lifestyle brands and athleisure portfolio under Aditya Birla Lifestyle, while demerged Aditya Birla Fashion would focus on high-growth segments with a large TAM (value and masstige, ethnic wear, luxury retail and digital-first brands).
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In the last few years, Aditya Birla Fashion and Retail Ltd. has invested in multiple new businesses, with a long tail of businesses that are presently loss-making or yet to stabilize.
While the debt concerns have been addressed with the recent fundraise, we believe that profitably scaling up the value fashion and ethnic wear and turning around the newly setup digital-first brands could be a bumpy ride.
We build in a CAGR of 7%/16% in revenue/Ebitda over FY24-27E for Aditya Birla Fashion, with demerged Aditya Birla Lifestyle Brands to record better ~11%/31% revenue/Ebitda CAGRs.
We value Aditya Birla Fashion on the SOTP basis. We assign EV/Ebitda multiple of 14x to both Aditya Birla Lifestyle and Pantaloons business and EV/sales of 1x to other businesses of Aditya Birla Fashion (demerged) on FY27E.
Our SoTP implies an enterprise value of Rs 203 billion (or ~Rs 166/share) for Aditya Birla Lifestyle and Rs 165 billion (or ~Rs 135/share) for the demerged Aditya Birla Fashion.
We reiterate our Neutral rating with a target price of Rs 285 as we await improvement in the demand environment and a profitable scale-up of Aditya Birla Fashion's loss-making businesses before we turn more constructive.
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